Ola raises $330 mn at $3.5-bn valuation

Valuation 30% lower, as SoftBank marked down its investment in the cab aggregator

Ola, India’s largest taxi aggregator, has raised $330 million in fresh funding, at a valuation of about $3.5 billion, from Japanese investor SoftBank and two other existing ones.

The round saw Ola’s valuation dropping 30 per cent from a peak of $5 billion, as global rival Uber significantly stepped up its challenge to the Indian firm. Apart from this, with increased regulatory hurdles, investor confidence in Ola is seen to be eroding.

Ola did not respond to Business Standard’s queries about the funding round, but a SoftBank spokesperson said the company did not comment on “market speculation”.

With the latest funding round, Ola will have a cash pile of around Rs 2,800 crore, according to a person aware of the company’s financials. Uber, on the other hand, had pledged to invest $1 billion in its Indian operations in July 2015, and followed it up with a promise to invest a “substantial portion” of the $3.5 billion it raised from the Saudi Arabia Public Investment Fund a year later.

Estimates suggest Uber spends $50-60 million a month on running its operations in India, subsidising rides for customers and incentivising drivers. 

In most cities, it has priced its service lower than that of Ola, which has prompted the latter’s co-founder, Bhavish Aggarwal, to accuse Uber of “capital dumping”, saying the US company was unfairly deploying capital earned from overseas operations to shut Ola out of business.

Uber’s tactic seems to have worked to some extent, as in the nine months ended December 31, SoftBank wrote off around $475 million in the value of its combined shareholding in Ola and Snapdeal, its two largest investments in the country. Snapdeal faces competition from US competitor Amazon.

However, there are signs that the tendency to get a jump over each other is ending. Both companies have reduced the incentives paid to drivers, a move that has caused the drivers to go on protest across the country, and increase fares. Experts say these are the first steps towards a sustainable business model, which includes owning cabs through the leasing arms both companies have set up. 

Ola might be under pressure from investors, but Uber, too, is looking to reduce its cash burn, as it nears its initial public offering. The US company, valued at $68 billion, has been the most successful start-up in raising funds. However, investors, who have a lock-in period of usually six years, will begin asking for returns on their investment.

This comes when both Uber and Ola are facing greater regulatory scrutiny in India, which, unlike the West, has rules that do not permit the general public to list their cars on cab-aggregator platforms. The most recent blow has come in the form of a ban on ridesharing in states such as Karnataka, Tamil Nadu and Delhi, a move that can hurt both companies.