The Story So Far
India’s biggest cab aggregate service, Ola takes a plunge with a new phase of down rounding.
A Down Round is a term used when a startup enterprise raises lesser funding as compared to the previous time.
Ola decidedly took a nosedive to counter their big rival in India, Uber.
In November 2015, the startup was valued at $5 billion when it successfully raised a capital of $500 million. To this day, Ola has successfully maintained a 60% market share in India, compared to its peers.
The newest investor for Ola is Japan’s Telecom giant SoftBank, which valued the cab service provider between $3 to $4 billion. The investment firm has been rumoured to spend between $250 to $300 million in Ola cabs.
Rumours surrounding Ola also indicated that it is in talks with other existing investors such as the Russian billionaire Yuri Milner’s DST Global and Tiger Global Management, and other hedge funds.
One of the sources close to Ola said, “One of the new investors in talks with Ola is New York-based technology focused hedge fund Coatue Management and a deal may be finalised in January 2017.” – sources the Economic Times.
Latest News: Slack Down In Funding
In the week starting February 6, 2017, the United States- based investment firm Vanguard World Fund devalued Ola by more than 40%, and own 166,185 shares in Ola valued at $30.37 million.
As per the US regulatory authority SEC (Securities and Exchange Commission), the current valuation for Ola stands at $3 billion, with its share price dropping significantly from $311.27 per share in the last quarter to $182.70.
Inflated estimates and their subsequent markdowns are regular for a company raising a substantial seed funding. But, it has become a newsworthy piece because it is new for the India’s startup. The one that reached the highest honour of being named a part of the Unicorn Club (a company that is valued at more than a billion US dollars.)
Valuations in general, are decided according to a company’s market share, gross margins, growth rate, risk factors, hot and new trends, competitive rivals, expected cash flow and profit margins.
The fear that surrounds now is will such an incident set off a domino effect causing other startups to be a target of devaluation and slack down in funding.
Investors tracking Ola’s record have said assuringly that the down round does not, however, represent the brilliant efforts and performance put forth by the firm, but rather a shift in exaggerated valuations from the last few years, especially 2014 and 2015.
For a while, Ola’s higher estimate had raised speculations from the market watchers, and comparisons have been made with peers such as the US-based Lyft, valued at $5.5 billion in January 2016.
Since the last year, Ola has expanded its range of services offered to its Indian customers- from luxury ride options to budget travels, subscription deals and promos, and the most recent, in-cab entertainment, in an attempt to outshine its rival Uber Technologies Pvt. Ltd.
Overall, the markups and markdowns are a typical market dynamics and not to be taken as a dismal rapport on the part of the company. Till date, Ola has raised a seed funding of $1.2 billion, which still maintains its seat at the big-boy table.
The talk of Ola raising nearly $300 million from SoftBank seems to have fallen through, and nothing new has been reported by the company so far.
In a country like India, where startups seem to be the benchmark that every millennial wish to achieve, what remains to be seen here is if such a down round for the two giants in India, Flipkart and Ola, effects other startup businesses too, especially those with seed funding from US-based or foreign-based investors.
Some companies that have raised Series A funding, and looking for the next rounds; now find themselves in tough spots with more questions to answer, and overall stringent viewpoints being thrown across the table from investors.
Bala Deshpande, Senior Managing Director of NEA India at an INK Conference said that an investor expects to show high growth sectors in their professional portfolio, causing massive confusions with different time frames and fundraising.
He adds by saying that an entrepreneur must stick to building an intrinsic value of the product or service provided. Valuations are simply a price decided by the market. Staying on course and invested in your idea will ultimately lead to progress and profits in the long-term.