After denying it earlier, Japanese Internet conglomerate SoftBank Group Corp. confirmed its intent to invest in Uber Technologies, Inc., the world's foremost ride-hailing firm, earlier this week. SoftBank's founder and CEO Masayoshi Son publicly indicated his interest in the company, which is deadlocked in a fierce battle for market supremacy with another of its cab-hailing bets, Ola, in India.
The potential investment, no more in the realm of conjecture, may redraw the battle-lines in India's cab-hailing market.
Speculations are rife that not only will it make Ola and Uber, who have been at each other's throats for years, awkward co-passengers, but also have far-reaching consequences for the homegrown taxi-hailing firm's future.
VCCircle spoke to industry experts to understand if SoftBank's backing of Uber will be an existential threat for the local market leader, and whether it will see Ola eventually fold into its bigger rival.
SoftBank declined comments for this story. Ola and Uber did not respond to email queries from VCCircle.
Too little, too late?
Serial entrepreneur and investor K Ganesh says Ola has little to worry since, even if a deal were to happen, it will be very late-stage funding for Uber. And such late-stage deals usually don't give the investor a strategic say in the company's matters.
“This is a late-stage investment. It may not get a controlling stake. Usually, when it is a Series A or B investment, the investor gets more rights. If you are an early investor, only then are you involved strategically,†he explains.
San Francisco-based Uber, valued at a whopping $69 billion, has so far raised over $12 billion, according to media reports. Therefore, even a potentially huge fund injection is unlikely to give SoftBank the power to call the shots.
Founders' firewall
According to VCCircle’s last year estimates, SoftBank held a 22.5% stake in Ola while Tiger Global had 20.5%.
In May, Ola rewrote the terms to restrict its investors, including SoftBank Group, from buying more company shares. The move was aimed at safeguarding the founders against a hostile takeover. SoftBank and its affiliates will need the approval of Ola founders Bhavish Aggarwal and Ankit Bhati, and the company’s board to purchase additional shares from other stakeholders.
The changes to the articles of association have also ramped up the founders' holdings in the company's share capital.
Reducing reliance on SoftBank?
Ola just raised $32 million (Rs 231 crore) from New York-based hedge fund Tekne Capital Management, which had put in another $50 million in the company in June.
Besides, it is reportedly in talks with China's Tencent to raise $400 million and tech giant Microsoft to mop up $50-100 million in lieu of a minority stake.
Though it would be premature to conclude that Ola would take the battlefield without SoftBank's backing, there are clear signs that it has been diversifying its investor base of late.
SoftBank's all in on cab-hailing
Anup Jain, managing partner at consumer and retail consultancy Redback Advisory Services, believes investing in Uber doesn't mean SoftBank will let the two rivals cannibalise each other in India. “Uber is a global bet. Ola is only in India. If it was specifically investing in Uber’s India subsidiary, then it would have been a concern for Ola,†he says.
Jain also points out that SoftBank seems to have identified cab-aggregation as a key vertical where it wants to stay invested.
Globally, SoftBank has also invested in Didi Chuxing, which until last year was involved in an intense battle with Uber in China. It has also backed Grab, a Singaporean ride-hailing company, in a $2.5-billion round where Didi Chuxing also participated.
Arvind Singhal, chairman and managing director at consulting firm Technopak, agrees with Jain. "SoftBank sees ride-sharing as a big opportunity. They will get good returns from both Ola and Uber. It is a financial investment," he explains.
With an investment in Uber, CEO Son might be hedging his bets.
Close game
Operationally, too, Ola is no pushover. It continues to have a lead over Uber in terms of market share, even though the latter has been snapping at its heels.
Both are, however, still burning huge amounts of cash, and neither seems to have figured out an organic strategy to win market share.
Ola saw its losses widen three-fold in the financial year through March 2016. It posted a consolidated net loss of Rs 2,311.7 crore for FY16 compared with Rs 796 crore in FY15. Total expenditure surged more than three-fold to Rs 3,078.19 crore from Rs 899.7 crore the year before, indicating higher cash burn.
Uber India posted a 442% jump in FY16 revenues to Rs 374 crore, up from Rs 69 crore in the previous year, according to its filings with the RoC. It didn't disclose its profit/loss figures.
Last week, Uber announced that it had completed 500 million rides in India in its fourth year of launch. It also claimed that it was clocking double-digit growth in the country.
Monopoly concerns
Legal experts are divided over whether SoftBank will engineer consolidation as a merger between the two may attract the Competition Commission of India's (CCI) attention.
“I don’t see that [a merger] happening. Because the CCI may come into the picture to avoid a monopoly being created,†says Technopak's Singhal.
But Vaibhav Choukse, partner, competition law at J Sagar Associates, had told VCCircle that while competition analysis depended on a lot of factors, CCI may primarily look at their combined market share and the level of competition in each geography where they operate.
“Based on that, the CCI can either approve, block or give conditional approval to the deal. Till date, the CCI has not blocked any deal,†he had said.
