More VCs opt a taxi ride to tap Indian growth story

Tapping the fast-growing Indian consumer growth story, venture capital players are betting big on the radio taxi services space signing more deals. The VC investors remain bullish as India has a massive, untapped market opportunity in cab aggregation. 

There are almost 600,000 taxis in the unorganized sector that can be aggregated, which is a $2.5 billion opportunity. About 5 deals worth $30 million had been taken place in 2013 against $7 million in 2012. Radio taxi services in India has witnessed 21 deals worth about $103 million in last 7 years.  Sanjeev Krishan, leader - Private Equity Transaction Services, PricewaterhouseCoopers Pvt said,  "This is an interesting space, but competition is hotting up now - largely this space facilitates and rides the consumer theme, which has had the biggest mindspace for PE funds in recent times."

Last year had witnessed deals such as $20 million follow-on investment in ANI Technologies which run services OLA Cabs by Tiger GLobal and Matrix India, investments in Savaari Car Rentals and taxiforsure.com.  

When large private equity funds like India Value Fund Advisors have shown interest in fleet operators, venture capital firms are agressively funding into taxi booking sites and other related spaces. Besides VC investments in Taxiforsure.com, another Bangalore-based online cab booking service provider - YourCabs.com, raised angel funding from Sprism Investment in 2012.

Taxiguide, an online car rental booking service, had also raised angel funding in 2012. Ritesh Banglani, Director, Helion Ventures, who sits on board of Serenedipity Infolabs which runs taxifor sure.com, said, " Once the taxi transaction comes online, it provides predictability, reliability and transparency for the consumer. For the driver, the number of trips per day increases and "dry usage" (trips without a passenger) reduces, giving a significant boost to his income. At Taxiforsure, we have seen the average income of drivers go up by 88% after joining the aggregator." As more players are entering into the market to tap the opportunity, a strong possibility for a consolidation is imminent, believe VC investors.

Also, global VC investors as well as strategic buyers who want to reap a pie of Indian consumption are likely to enter into the space shortly. Sanjay Nath, Managing Partner, Blume Ventures said, "Success story of India based technology driven players makes the model a novel asset light big hit among investors looking for high potential, high return technology based business models. With the entry of Uber and the plans of various international players to enter Indian market, the interest is the space is pretty evident.

Exit options are aplenty for the space right now with more takers in the investor circle as well as in the IPO market." The industry expects 30-40% growth annually, on the back of rising demand for car rentals from the middle-class and demand for luxury cars for special occasions. "From a time when cars were hired only for long-distance travels since it cost a lot of money, customers today are not wary of travelling short distances by rental cars, since prices have dropped. Players have also become aggressive to tap an active customer base. Hiring a Mercedes or Audi for a wedding which was earlier unimaginable for a middle-income family is now lighter on the pocket, thanks to more players and intense competition," said the chief executive of a firm operating in the luxury car rental space.

The real challenge is to reach to the uncharted territories of the rural areas. As a Mumbai-based angel investor points,  "While companies keep increasing their fleet size and the new locations, nobody has made big plans to venture into smaller towns. That is where the real market is and that is where they need to go to expand their business." Investors say that this segment is marked by the lack of good and reliable service; hence new players are welcome. The average investment period is usually five to eight years from investment."