Softbank to invest fresh capital in Indian cab service Ola

An infusion of $250 mn - $300 mn is underway

The Dollar Business Bureau

After Flipkart roped in $1.4 billion funding from a consortium of private investors recently (eBay, Microsoft, and Tencent), Ola is the second struggling home-grown new-generation startup to avail a fresh capital of $250 million - $300 million from Japanese telecom major Softbank this year.

As revealed by the filings in Registrar of companies, SIMI Pacific Pte, Softbank's subsidiary, has bought 12,97,945 shares at a premium of Rs 12,895 in ANI Technologies, the parent company of Ola.

Struggling to overcome severe competition from American cab service provider Uber, market leader Ola's story is not very different from the face-off between Flipkart and Amazon. But the similarities between the two cases extend beyond the market dynamics, to include the involvement of the same global mega-investor Softbank.

The Japanese backer of Ola, after facing setbacks on its $627 million investment in Snapdeal, recently initiated negotiations to merge the third largest online marketplace with rival Flipkart. Softbank's initial investment in Ola during October 2014 amounted to $210 million.

It's big bet on the Indian startup industry cost the firm write-downs of $555 million in 2016, from which, the Japanese major aims to bounce back. By showing renewed confidence in the potential of Indian market to shower profits, Softbank has been balancing out the otherwise lackluster investor sentiment , dampened by falling valuations and high burn-out rates with ever-evasive profitability.

The infusion of new financial muscle into Ola will invigorate the fierce competition between the no.1 and no.2 players in the market. Ola is seeking investments up to $500 million to compete effectively. Uber, which has recently sold off its operations in China to local player Didi, has its eyes set on conquering the Indian market.

So far, Ola has raised a total funding of $1.2 billion and had  a valuation of $5 billion in 2016. Tiger Global Management, DST Global, Matrix Partners India and Softbank are among its biggest stakeholders.

To stay relevant in the VC circles and maintain inflated valuations, Indian startups are clearly required to do more than just boosting user base. A roadmap to profitability would resuscitate the lost investor confidence and enable the startup ecosystem to grow vigorously. 

The Dollar Business Bureau - Apr 15, 2017 12:00 IST