Ola raises $1.1B led by Tencent to fuel battle with Uber in India

It’s been a long while coming but Uber’s chief rival in India is finally raising a big round, and joining the billion-dollar round club at the same time.

Ola today announced that it has closed $1.1 billion in fresh financing. That’s the largest funding round in the company’s six-year history and its first major raise since November 2015 when it closed $500 million from investors.

The company has since raised smaller, undisclosed amounts provided by existing investors, but it is fair to say that this new round has been much expected — and needed. It’s look like there’s more to come, too, with Ola telling media it is close to finalizing an additional $1 billion that would take the round’s final close to $2.1 billion.

Ola has had its valuation clipped as low as $3.5 billion this year, but a source with knowledge of the new deal told TechCrunch that the company is on track for a post-money valuation of $7 billion once the full $2.1 billion raise is finalized. That’s a slight bump (pre-money) on that 2015 fundraise when Ola was valued at $5 billion post-money which is notable given recent devaluations.

Perhaps even more interesting that the valuation is the investors.

Media leaks have spoiled the surprise somewhat — Ola has been obligated to report some of its funding to regulators in India, ensuring a drip-drip of news — but China’s Tencent is a new backer and the lead investor of the round. SoftBank, an existing Ola investor (and an investor in Grab, Lyft, Didi AND seemingly soon Uber), is also in, but Ola isn’t disclosing which “U.S.-based financial investors” joined them. Media reports suggested one is Coatue, which has backed Grab and Didi, but Didi — which made a previous Ola investment and has reinvested in Grab and widened its investment network worldwide — appears to have sat this round out.

Make of that what you will.

But Tencent’s participation is particularly intriguing and further proof that the Chinese giant — valued at more than $300 billion — is upping its game in India through local tech firms that are battling global rivals. Tencent backed Flipkart via a $3 billion funding round this summer — which provided long-overdue ammunition for its battle with Amazon — it led a critical raise for WhatsApp rival Hike, which valued the Indian upstart at $1 billion, and it invested in healthcare firm Practo which harbors bold international expansion plans.

Ola fits that mold perfectly, being that it is the local fighter that is taking on a global giant, Uber.

That’s really been Ola’s focus all along: to out localize its foe. And on paper it has done that with a number of initiatives that include:

However, on the business side of things, Ola’s losses have mounted. According to filings reported by Business Standard, parent company Ani Technologies saw losses triple to reach $360 million for the 2016 financial year despite revenue jumping seven-fold to $160 million.

That led to a series of smaller investments from backers such as SoftBank, which is reported to have put $250 million in at a lower valuation of $3.5 billion in April of this year, to keep the house in order. More broadly, a renewed focus on more sustainable spending led one market research firm to conclude that the number of rides from Uber and Ola in India actually decreased in the first quarter of 2017 due to a cutback in previously generous subsidies for drivers and passengers.

Uber doesn’t reveal numbers for India, while Ola declined to give its figures. However, a source close to Ola told TechCrunch that it is currently handling more than two million completed rides per day across its services, which it claims includes 800,000 drivers.

One thing that is more certain behind the hazy numbers guessing game is that this round finally gives Ola some stability. Uber has been busy fighting its own fires and attending pressing concerns in the U.S. this year but now, with a new CEO in place, there’s no reason it wouldn’t double down on India to avoid a repeat of its demise in China, where it was forced to sell to Didi after losing the market.

India is equal in promise, with over a billion people and a growing economy, and it remains Uber’s most important overseas market as evidenced by its dedicated tech center and past investment of over $1 billion. Now, with new funding in place, Ola has a level of war chest assurance at its disposal should Uber go pedal to the floor in India.

The company didn’t say too much about how it plans to spend this new money, other than the usual favorites of increasing supply of drivers — so more efforts on leasing and affordable car finance — and developing technology. The latter focuses on the use of artificial intelligence and machine learning to solve issues like which side of the road a passenger is waiting on. That might sound trivial but in the megacities of Asia, it is a factor that can cost you an additional 20 minutes if you get it wrong.

One area where Ola is not actively investing is self-driving cars, it has said that congestion and pollution are more critical in India. That said, it has made progress with a fleet of electric cars and rickshaws which have operated in the city of Nagpur since earlier this year. That’s a model the company is hopeful it can replace in other parts of the country with the right support from government agencies and other stakeholders.

For now though, this much-needed financing will give Ola stability. While Grab is actively trying to beat Uber out of Southeast Asia after raising $2 billion, its India peer might now be able to realistically dream that it too can take the initiative against its U.S. rival.