Ola to raise $2 billion in fresh funding from Tencent, SoftBank

India’s largest ride-hailing company, Ola, is in talks with SoftBank and Tencent to raise up to $2 billion in fresh funding at a time when global rival Uber is recovering from a management shakeup that saw founder Travis Kalanick ousted from the role of chief executive officer.

The deal on the first $1 billion is expected to be closed soon and will not see participation from Ola’s largest investor, SoftBank.

Chinese Internet giant Tencent will lead the sub-round with an investment of $450-500 million, apart from the participation of two global venture capital firms, people familiar with the development said.

Additionally, the UC-RNT Fund, which is born of a partnership between former Tata Sons chief Ratan Tata and the University of California’s investment arm, could plough $50 million into Ola. 

Tata is already an investor in Ola in his personal capacity. The Ola spokesperson was not available for comment. According to a person who did not want to be named, SoftBank has set terms for Ola to receive the second part of the $2-billion planned investment. Ola will have to deliver on certain goals the Japanese investor has set, drawing from its knowledge of the ride-hailing business with investments in Didi Chuxing and Grab Taxi.

The valuation at which Ola will raise the fresh funding could not be ascertained immediately. In its previous funding round, the firm had settled for a valuation of $3.5 billion, a 30 per cent reduction from its peak value of $5 billion, when it raised around $330 million from SoftBank, UC-RNT and Falcon Edge Capital in November last year.

On August 30, Ola’s board approved the raising of $400 million from investors to “strengthen the financial position of the company” according to documents filed with the Registrar of Companies filed in September.
 
While Ola continues to lead in terms of market share in India, in the top seven to ten cities in the country, both it and Uber are neck to neck in terms of market share, say analysts. In the past year however, growth in India’s ride hailing market has slowed as both players have begun reducing cash burn, starting with cutting incentives paid to drivers. This has led to thousands of drivers moving off the two platforms.
 
Softbank’s participation in the round comes as the company is looking to lead an investment of as much as $20 billion in Uber’s global operations. If the deal goes through, Softbank will have significant power in both Uber and Ola, allowing it to dictate the fate of India’s fledgling ride hailing space.
 
However, news agency Bloomberg last month had reported that a truce between Uber and Ola in India was not among the clauses the investor had put forward to the US ride hailing company. That said, it is highly unlikely that Softbank will be willing to lose money on both fronts as the two companies burn cash to gain leadership in India.
 
Ola will become the second Indian startup to raise $2 billion or more in a single funding round, only after Flipkart, which closed a $2.5 billion funding round from Softbank recently. Softbank on the other hand has emerged as the largest venture capital investor in the country, claiming that the valuation of its investments in India tops $6 billion.