Cab-hailing firm Ola has decided to raise Rs 1,675 crore ($250 million) from existing shareholders, as it seeks to beef up its finances to take on growing competition from US rival Uber Technologies Inc.
Ola plans to sell about 1.3 million preference shares at Rs 12,905 each in a rights issue to shareholders, documents filed with the Registrar of Companies (RoC) show.
The fundraising comes on the heels of India's largest online retailer Flipkart raising $1.4 billion from Tencent Holdings Ltd, eBay Inc. and Microsoft Corp.
Both Ola and Flipkart had been looking for fresh funds to fight off competition from US rivals, Uber and Amazon.com Inc, respectively, and maintain leadership position in their verticals.
Incidentally, US hedge fund Tiger Global is a common investor in both the Indian companies. There is another link that ties them together—Japan’s SoftBank Group Corp, a major shareholder in Ola, is said to be in talks with Tiger Global for merging portfolio firm Snapdeal with Flipkart.
SoftBank has been looking to consolidate its India investments, after betting nearly $2.8 billion in seven companies including Snapdeal, Ola and messaging app Hike. The Japanese company reported a valuation loss of ¥39.3 billon (nearly $350 million) from its financial instruments for the nine-month period ended December 31, 2016, largely due to a decline in fair value of preferred stock investment in companies including Ola and Snapdeal.
The fundraising by Ola and Flipkart also indicates the challenges Uber and Amazon face in India as their rivals join hands to establish dominance in India. Uber and Amazon have leadership positions in the US but both have failed to make a mark in China, the world’s most populous nation and the second-largest economy. Uber last year exited China, where SoftBank-backed Alibaba Group and Tencent are among the biggest e-commerce companies. That leaves India as the key battleground.
Ola, run by Bangalore-based ANI Technologies Pvt. Ltd, said in the RoC filing that it will use the funds to expand its business and strengthen its financial position.
The company’s board proposed the rights issue on 24 October last year. This means the fundraise could be part of the $330 million round of funding reported by the media in February.
Ola didn’t respond to an email seeking comment till the time of writing this article.
It is not clear what valuation is Ola seeking in this round. In the last funding round, in August 2015, Ola was valued at $4.8 billion. However, the media reports in February pegged its valuation around $3.5 billion.
Founded by Indian entrepreneurs Bhavish Aggarwal and Ankit Bhati in 2010, Ola has so far raised close to $1.2 billion from marquee investors, such as Tiger Global Management and Matrix Partners.
This includes $500 million in a Series F round from Scottish investment firm Baillie Gifford, China’s Didi Chuxing and other investors in November 2015, $400 million in a Series E round led by DST Global in April 2015, and $210 million in its Series D round led by SoftBank in October 2014.
The company, however, has been burning a huge amount of cash to woo customers and gain market share. Its revenue rose seven-fold to Rs 380.2 crore in 2014-15 from Rs 49.6 crore in 2013-14. But its net loss widened to Rs 754.8 crore from Rs 34.2 crore, as total expenditure surged 14 times to Rs 1,173 crore. Its numbers for 2015-16 are not available.