Ola faces valuation decrease as it prepares for latest funding round
India’s ride-hailing app Ola is due to accept a new round of funding at a lower valuation as it attempts to reserve capital to guard against the local growth of Uber, its largest rival. The company has been valued anywhere between $3bn and $4bn in its latest funding round led by investor SoftBank, having previously been valued at $5bn this time last year. Ola is seeking $500m in this round, which could increase to $750m if new investors invest heavily.

NEW DELHI/BENGALURU: India’s largest ride-hailing app

is preparing to bite the bullet and accept fresh funding at a lower valuation as it seeks to shore up capital required to fend off challenge from rival

, the world’s most valuable startup.

The fund-raising, when goes through, maybe the first ‘down round’ in the country for a unicorn, or a startup valued at over a billion dollars. In a down round, the valuation at which the company raises money from investors is lower than its valuation in the previous round of fund-raising.

The company is being valued at anywhere between $3 billion and $4 billion in its latest round of funding led by existing investor Japan’s

, according to five people aware of the developments. Ola, which still remains the leader in the ride-hailing space with about 60% market share, was last valued at $5 billion when it raised $500 million in November 2015.

“The funding from SoftBank is already in the bank and Ola is raising the round at a valuation of $3 billion,” said one person directly familiar with the matter.

Two other sources confirmed the development. Ola did not reply to email queries. A representative for SoftBank said, “we do not comment on speculation.”

SoftBank has already invested about $250-300 million in Ola as part of the new round in which the company is expected to raise additional capital of about $500 million.

The company is in talks with other existing investors like Russian billionaire

's DST Global and Tiger Global Management to invest in the round, besides new investors which include hedge funds, sources said.

Ola is looking to raise about $500 million in the present round which could go up to $750 million if it is able to get new investors to write large cheques, ET reported last month.

Read Also Ola has a new strategy to counter Uber

“One of the new investors in talks with Ola is New York-based technology focussed hedge fund Coatue Management and a deal may be finalized in January 2017,” said one of the sources.

Funding slowdown

While this down round is not a first for the Indian startup sector, which has seen a spate of such deals in the wake of a funding slowdown this year, it is the first for a unicorn.

Other unicorns including India’s most valued startup

, have seen US-based mutual funds slash the value of their holdings by up to 40%, but these companies have not raised fresh funding at lower valuations.

Investors tracking the space said that Ola's down round is an example of how the price of capital has changed from the exuberance of 2014 and 2015, and is not a reflection on the company’s performance per se.

“There is a negative stigma around down rounds, but it is not a dirty word,” said a venture capital investor.

Globally several companies have also raised a down round in the last 12 months. These include US-based on-demand delivery application Door-Dash besides firms like Twitter founder Jack Dorsey's payments venture Square and storage startup Box, which went for an IPO below their private valuations.

Most famously, Facebook also saw its valuation fall from $15 billion in 2008 when it raised capital from

, to $10 billion when it raised funding from DST Global.

Read Also Older taxi aggregators in Chennai still accepting Rs 500 bills as Ola, Uber go digital

High valuation

For some months now, Ola's high valuation has raised eyebrows as its revenues have not matched that of peers like US–based Lyft, which was valued at $5.5 billion in January. According to a report in Bloomberg in June, Lyft had annual revenue run rate of $1.9 billion in May.

“Ola’s run rate in the same period was pegged at less than half of that (of Lyft),” said one investor aware of the financials of the company, who reckons that a down round was definitely warranted.

A down round means that existing shareholders, including founders, see higher dilution of their stakes and value of employee stock options also comes down. Among investors, some also have rights to get more shares to make up for losses due to fall in valuations. ET could not ascertain if any Ola investors have triggered such clauses.

Over the last one year, Ola has been expanding its range of services — offering a range of ride options from budget to luxury, subscription deals, and more recently in-cab entertainment — to outmatch Uber on strategies beyond pricing.

Ola’s plans to beef up its war chest comes at a time when Uber is stepping up its investments in India, which has become the most important market for it outside the US after exiting China in July this year.

Uber is world’s most well financed startup having raised $15 billion in equity and debt. Till now, Ola has raised about $1.2 billion in funding.

Facebook Twitter Linkedin