Chinese internet conglomerate Tencent is in advanced talks to invest in India’s largest ride hailing app Ola, according to four people aware of the talks, which if successful could result in an investment of $400 million providing the Bengaluru company with more cash to stave off the challenge from close rival Uber.
The Bengaluru company has raised nearly $400 million since November last year as it seeks to fortify its position as the first mover in the Indian taxi aggregation market. If the investment from Tencent fructifies, Ola will mop up over $800 million in fresh total funding. The additional capital will push Ola's valuation to over $4 billion.
"Tencent executives were in Bangalore last week and they met the Ola management team to discuss the transaction," said one of the people cited above.
Ola has also held talks with US technology giant Microsoft to participate in the current round, said the source, but those talks have not yet advanced.
A representative for Ola declined comment. Tencent did not reply to email queries from ET.
For Tencent – which has backed India’s largest online retailer Flipkart – the successful completion of a deal with Ola will make it one of the most influential investors in the Indian market, with total investment of over $ 1 billion. This will place the WeChat owner in the same league as Japan’s Softbank –currently the largest investor in Ola—as well as New York-based Tiger Global—the biggest investor in Flipkart.
Tencent has also backed other taxi app companies like China’s Didi Chuxing and US-based Lyft, besides Southeast Asian bike taxi firm Go-Jek, all of which compete with Uber.
The entry of Tencent will also help Ola curtail influence of it's largest shareholder Softbank, which is reportedly in talks to invest in Uber. Earlier this year Ola also amended it's Articles of Association (AoA) under which SoftBank needs approval of Ola's founders Bhavish Aggarwal and Ankit Bhati, besides the board, to increase it's stake through either primary or secondary share purchases.
Ola has managed to raise about $150 million in funding this year, from funds like Ratan Tata’s venture fund RNT Capital Advisors, US hedge fund Falcon Edge, and New York-based hedge fund Tekne Capital Management. In November it closed a $250 million raise from SoftBank, after which it has kept the funding round open.
The funding momentum comes after Ola decided to raise capital at a lower valuation of $3 billion—down from $4.5-5 billion in 2015----from Softbank in November last year. The fundraising was the first down round — a term used to define fundraising at a lower valuation — for an Indian internet company valued over $1 billion in the current cycle.
But since then Ola has also started gaining back market share, with its push to add new services like auto and outstation rides that have begun to pay off.
Uber is not present in the auto segment in India right now and has recently started expanding its bike sharing service.
Ola’s plan to work closely with the government and introduce electric vehicles in cities like Nagpur is expected to boost prospects for the Indian company.
The increasing interest in Ola among investors comes at a time when it's San Francisco-based rival Uber has been embroiled in a series of internal challenges, which have already led to changes in its top management.
Uber also announced earlier this month that it is exiting direct operations in Russia, having sold its business there to local player Yandex for a stake in the combined entity. Last year, Uber sold its business in China to Didi Chuxing. This has increased questions about whether Uber, which is world's most valued startup at $70 billion, will continue to aggressively spend on global markets.
Meanwhile its rivals in foreign markets have been able to mop up cash. Southeast Asia's Grab recently announced a $2 billion round from Softbank and Didi. Softbank had said in May that it will invest about $5 billion in Didi Chuxing. US-based Lyft also raised $600 million in April.
By Courtesy of Tencent