Bengaluru/New Delhi: Ola, India’s third most valuable Internet company, is in early talks with potential investors to raise at least $500 million in fresh capital to fund expansion and cement its position as the country’s No. 1 cab hailing service, three people familiar with the matter said on Wednesday.

Last month, Ola, run by ANI Technologies Pvt. Ltd, raised $400 million from a consortium of investors led by Russian firm DST Global.

Ola is backed by more than 10 other investors including SoftBank Corp., Tiger Global Management Llc, Singapore’s sovereign wealth fund GIC Pte. Ltd, Falcon Edge Capital Lp, Steadview Capital Management Llc, Sequoia Capital and Matrix Partners.

“They are well-funded for this year but since there is such high demand for Ola, they want to capitalize on this. A new raise will help them build a bigger war chest and allow them to spend freely on discounting and experimenting with new businesses," one of the three people cited above said. All three spoke on condition of anonymity.

Ola hasn’t decided on the final amount yet, but is looking to raise at least $500 million, the three people said, adding that the taxi aggregator is in talks with both new and existing investors. Ola didn’t respond to an emailed query from Mint.

The last round of funding vaulted Ola’s valuation to $2.5 billion, making it the third most valuable Internet company in India, behind only e-commerce marketplaces Flipkart and Snapdeal.

Ola, which has already raised roughly $800 million over the past year, needs capital to spend on marketing, discounts and expansion into new cities. The company also needs to fund its TaxiForSure unit, which it purchased in March in a cash and stock deal worth $200 million.

The company is planning to enter product deliveries and mobile-based navigation technology, tracking similar moves by rival Uber Technologies Inc. in the US, Mint reported on 16 March.

Ola launched food delivery services in a few cities in March and is planning to enter other logistics businesses such as grocery and e-commerce product deliveries this year, the three people cited above said.

“Ola is now a consumer company with their recent move into food delivery and more. And to build that, the company would require more funds," said Sumir Verma, managing director of Merisis Advisors, an investment bank focused on technology, media and telecom companies.

“Also, the cab market is huge and we are still in the nascent stage where supply is falling short of demand," he added.

Ola is likely to launch grocery delivery services within next 30 days, according to two people aware of the development.

Founded in January 2011 by two Indian Institute of Technology, Bombay, alumni, Bhavish Aggarwal and Ankit Bhati, Ola is the country’s largest marketplace or platform for car rentals and point-to-point cab services. The company, together with TaxiForSure, is clocking more than 300,000 daily rides, according to the three people cited above.

A shift in consumer habits towards convenience and on-demand services, and, most crucially, low prices, have fuelled a boom in demand for taxi-hailing services such as Ola, TaxiForSure, Uber and Meru. Ola became the market leader last year and increased its lead by acquiring TaxiForSure.

Ola’s planned fundraising comes amid a wider funding boom for Indian start-ups. Internet companies attracted more than $4 billion in capital last year and that amount is expected to be exceeded this year.

After last month’s fund raising, co-founder and chief executive officer Aggarwal said: “The new funds will be used for two purposes. We are currently in 100 cities, we want to be in 200 cities by next March. And we want to grow both Ola and TaxiForSure aggressively in existing cities. Secondly, we will be investing heavily into scaling up our engineering team and our product architecture."

“We have more than 100,000 drivers on our platform, and by the end of 2017, we want to have more than one million drivers," he added.

Ola doesn’t own cars or employ drivers; it connects cab drivers with customers using technology and keeps a cut from each ride. This so-called marketplace model is similar to that of Uber. Meru, on the other hand, deploys a mix of inventory and marketplace services.

Internet companies have already received more than $2 billion so far in 2015, according to Mint research. Additionally, Flipkart and Snapdeal are in talks to raise hundreds of millions of dollars in fresh funds while smaller companies such as Zivame and Pepperfry are also raising fresh capital, according to several people familiar with the matter.

Apart from Ola’s $400 million fund raise last month, Paytm struck a deal to raise up to $575 million from Alibaba’s payment business, Ant Financial Services; while classifieds site Quikr and online marketplace Shopclues raised $150 million and $100 million, respectively, from investors led by Tiger Global.

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