Ola raises $1.1 billion from Tencent and SoftBank, says $1 billion more coming

Bengaluru: India’s largest cab-hailing service Ola (ANI Technologies Pvt. Ltd) has raised $1.1 billion in fresh funding from China’s Tencent Holdings Ltd and existing investor SoftBank Group Corp. of Japan, giving it enough ammunition to keep arch-rival Uber Technologies Inc. at bay, even as the biggest investors in India’s consumer internet ecosystem begin to close ranks.

add_main_imageOn Wednesday, Ola said it was in advanced talks to raise another $1 billion from existing and new investors, thus rounding off what may turn out to be a $2 billion funding round.

The Ola funding is the latest in a series of billion-dollar investment rounds in the Indian start-up ecosystem this year, with both Flipkart and Paytm having raised massive amounts of capital this year. Flipkart leads the charts, having raised at least $2.8 billion in two separate tranches from SoftBank, Tencent, eBay Inc. and Microsoft Corp., while Paytm raised $1.4 billion from SoftBank earlier this year.mobAds

The latest funding in Ola is also a clear sign of the largest investors in India’s start-up ecosystem closing and consolidating ranks, with Alibaba Group Holding Ltd and SoftBank forging an informal alliance of sorts on one hand, and Tencent and Naspers Ltd combining forces on the other.

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So far, these investors have put their full weight behind the consumer internet “unicorns” that they perceive to be the outright winners in their respective categories, even as these local internet giants attempt to stave off existential threats from multinational rivals such as Amazon India and Uber.NextMAds

“We are thrilled to have Tencent Holdings join us as new partners in our mission to build mobility for a billion Indians. The transportation and mobility industries are seeing huge changes globally. Our ambition is to build a globally competitive and futuristic transportation system in India that will support and accelerate a nation on the move. Our new partners share our passion for building the future of transportation in India together and we look forward to learn and benefit from their global perspectives and ecosystems,” said Ola co-founder and chief executive officer Bhavish Aggarwal in a statement.

Ola, which is the third-most valuable start-up in the country, has been trying to raise fresh capital since June 2016. Prior to this round, it received at least Rs2,345 crore from SoftBank Group. Before this round, Ola got a pre-money valuation of roughly $3-3.3 billion, a sharp drop from the $4.5 billion valuation it commanded in September 2015. Pre-money refers to valuation excluding the current round’s cash infusion.

Mint first reported in June 2016 that Ola was in talks to raise fresh funding, and reported again in July this year on the latest funding discussions. thirdMAds

Ola needs massive amounts of capital as it is locked in a bruising battle with the local unit of Uber Technologies, the world’s most valuable and deep-pocketed start-up, which is also in talks to raise funding from SoftBank. After it sold its Chinese business to Didi Chuxing in August last year, succeeding in India has become one of the top priorities for Uber. Those priorities have not changed under new CEO Dara Khosrowshahi.

“What this (Ola’s fundraising) indicates is that the top investors such as SoftBank, Tencent and Alibaba are going to put their weight behind the top consumer internet start-ups. They will basically go all out to back category winners such as Flipkart and Ola. What you’ll see is that they’ll do more of these late-stage bets and maybe pick up stakes in the top 20 start-ups, whichever ones are most likely to survive and deliver meaningful exits,” said Abhishek Goyal, co-founder at Tracxn, a start-up tracker.

“For the likes of Flipkart and Ola, this gives them enough breathing space in their fight against the likes of Amazon and Uber, but money alone doesn’t solve all their problems, since both sides are extremely well-funded. The race for the top is still very much open,” added Goyal.

Ola and Uber currently are locked in a dispute over who controls how much of the market. Uber claims it is bigger than Ola, but executives and investors in Ola claim that Uber is less than half of Ola’s size. There is no conclusive way of ascertaining either claim.

Ola reported a seven-fold jump in revenue to Rs758.23 crore in the year ended 31 March 2016, but losses nearly tripled to Rs2,313.7 crore because of heavy discounts to customers and spending on incentives for its drivers.fifthMAds

With the latest round of funding, Ola plans to make strategic investments in its supply chain and technology, while also making significant investments in technologies such as artificial intelligence and machine learning. Ola will also invest in increasing its fleet of vehicles and presence in Indian cities.

“Ola’s unique local offerings are tailored to India’s burgeoning transportation needs. The strategic partnership with Ola makes it possible for Tencent to be part of the fast-growing ride-hailing space in the country. We look forward to helping Ola further develop India’s transportation solutions,” said Martin Lau, president of Tencent.