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Business deals

Singapore's RedDoorz hotel chain raises $70m as Rakuten jumps in

Japanese e-commerce group opens new front in its battle with SoftBank

RedDoorz holds its independent hotel owners to common standards such as clean linens for guests, and offers them economies of scale in return. (Photo by Rie Ishii)

JAKARTA -- RedDoorz, a Singapore-based hotel startup focused on Southeast Asia, has raised $70 million from investors, including Japanese e-commerce leader Rakuten, as it gears up to take on Indian rival Oyo, which is fast expanding in the region.

The Series C funding round was led by Singapore-based private equity firm Asia Partners and includes South Korea's Mirae Asset-Naver Growth Fund. It comes just weeks after the startup confirmed its $45 million Series B round, led by China's Qiming Venture Partners. The rapid-fire fundraising underscores investors' growing interest in the budget accommodation business in Southeast Asia, which is forecast to become a $36 billion market by 2025, according to a report by Google and Singaporean sovereign wealth fund Temasek.

It also comes at a time when Oyo, headed by 25-year-old entrepreneur Ritesh Agarwal and backed by SoftBank Group, has pledged to spend $200 million in the region in hopes of having 25,000 hotels by 2023, up from 1,260 hotels now. RedDoorz has more than 1,400 listed properties in over 80 cities across Southeast Asia.

The Singapore based company says it has raised $140 million since its founding in 2015. Its valuation has not been disclosed, but Amit Saberwal, founder of RedDoorz, has previously said he wants to make the startup a unicorn -- a private company valued at over $1 billion -- by 2022.

Like Oyo, RedDoorz gathers independent budget hotels under one banner. The properties vary in quality, but RedDoorz endeavors to hold them to common standards, insisting on clean sheets and towels, reliable internet service and safe drinking water. Its proprietary system provides big-data analysis to predict demand and set room rates accordingly, while the group's independent hoteliers benefit from economies of scale, helping them to hold costs down.

The newly raised funds will be used for "a bit of everything," said Saberwal, including expansion. The company now operates in Indonesia, Singapore, the Philippines and Vietnam, and a move into Thailand and Malaysia has been mooted. Saberwal said the company also plans to use the funds to open up a second data center, possibly in Vietnam.

While the RedDoorz founder did not reveal a timeline for an initial public offering, he said it was "something we think about a lot." Saberwal added that the presence of lead investor Asia Partners -- whose co-founder Nick Nash oversaw the high-profile IPO of former unicorn Sea Group -- will help it if and when it decides to float its shares. "That kind of hands-on operational experience is missing in our current team. I think they can offer us a lot of value in that particular thing," Saberwal said.

For Rakuten, the online mall operator known as Japan's answer to Amazon, the investment in RedDoorz again pits it against its domestic rival SoftBank. Rakuten's founder, Hiroshi Mikitani, has always thought of SoftBank's Masayoshi Son as a competitor, according to people close to him. Mikitani aims to create a global tech giant of his own.

Rakuten is rarely thought of as being in the same league as SoftBank, which has poured billions into ride-hailers, artificial intelligence and myriad technology companies worldwide. Yet a glance at Rakuten's investments reveals a portfolio of over 40 tech companies across the globe, some of which compete directly with SoftBank's portfolio companies.

The biggest battle so far is in ride-hailing, with Rakuten backing Lyft in the U.S. and Go-Jek in Southeast Asia, while Son has poured money into Uber Technologies and Grab in those two markets through his $100 billion SoftBank Vision Fund. Now Rakuten is taking the fight into budget accommodations, a market that is equally fast-growing, driven by rising incomes and budget-conscious millennial travelers.

For Rakuten, the investment in RedDoorz pits it against rival SoftBank once again, as its founder Hiroshi Mikitani, aims to create a global tech giant of his own.

While the ride-hailing companies have a similar amount of clout in their respective home markets in terms of market share and valuation, the same cannot be said for RedDrooz and Oyo. At $5 billion, the Indian company's market value trumps that of RedDoorz. And Oyo operates globally. RedDoorz's vision, by contrast, is to "be the dominant Southeast Asia player," in the words of Saberwal.

Rakuten's Mikitani will be hoping this focused approach helps RedDoorz better navigate the cutthroat but lucrative Southeast Asian market, and delivers a windfall similar to what it received from Lyft's IPO earlier in the year. Rakuten's $700 million, 13% stake in the U.S. ride-hailer was worth $2.26 billion at Lyft's IPO price of $72 per share.

Rakuten insists that investment is not its core business. But profits from successful bets on startups could prove pivotal in the coming years. Its position in the Japanese e-commerce market faces increasing pressure from Amazon and other rivals. The company is also diversifying into telecommunications and is set to join NTT Docomo, KDDI and SoftBank Corp., SoftBank's mobile unit, as Japan's fourth mobile network operator this year. It will need ample financial firepower to challenge the incumbents.

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