Temasek, Warburg Pincus, Bhavish Aggarwal invest $500 mn as Ola plans IPO

This is amongst the largest investments in the Indian consumer internet space by these funds and is a testament to the robust and resilient business built by Ola

Ola, the world’s leading mobility platform, has said Temasek and Plum Wood Investment Ltd, an affiliate of Warburg Pincus, are partnering company founder Bhavish Aggarwal for a $500-million investment ahead of its initial public offering (IPO).

“Warburg Pincus is a new investor and Singapore-based Temasek is an existing investor since 2018,” said a person familiar with the development.

“This is mainly a secondary transaction.”

According to sources, in this financing round, Temasek and Warburg have bought shares worth $500 million from two of Ola’s existing investors. They said Tiger Global and Matrix Partners India, both of which hold 13-15 per cent in Ola, had sold shares in this round.

“Tiger Global has partially exited,” said a source.

According to sources, Japan’s SoftBank holds 22 per cent and China's Tencent has about 9 per cent in Ola.

The funding comes at a time when Ola’s transportation business has been badly hit by the pandemic.

“The good news is that its unit economics has improved more than the negative impact on their business,” said a person. “While Covid-19 brought its business down, it used the pandemic to improve its unit economics.”

The funding is among the largest investments in the Indian consumer internet space by these funds. The Bengaluru-based firm said this was a testament to the robust and resilient business built by Ola as it continues to scale up across various categories and geographies in its ride-hailing business.

“Over the past 12 months we’ve made our ride-hailing business more robust, resilient, and efficient,” said Bhavish Aggarwal, chairman and group chief executive officer.

“With strong recovery after lockdown and a shift in consumer preference away from public transportation, we are well positioned to capitalise on the various urban mobility needs of our customers. I welcome Warburg Pincus and Temasek to Ola and look forward to collaborating with them in our next phase of growth,” he said.

Vishal Mahadevia, managing director and head of the India business at Warburg Pincus, said his company was excited to partner Aggarwal and Ola. “They are the leading mobility platform and one of biggest consumer internet platforms in India with a robust and fast growing business. We look forward to collaborating with Bhavish and the team in the next phase of Ola’s growth,” he said.

This is the first time that Ola has raised a major funding round since its Series J financing in 2019, according to data analytics firm Tracxn.

Ola had raised about $3.8 billion, according to the data platform Crunchbase.

The firm did not reveal its valuation after the new funding round. It was valued at $6.5 billion when it raised funding from South Korean vehicle maker Hyundai in 2019.

However, in May last year, Ola laid off 1,400 employees, or over 33 per cent of its workforce, due to the pandemic. It saw a massive slump during the lockdown.

In March this year, US-based investment firm Vanguard Group, an investor in Ola, had marked down its valuation further after slashing it by nearly half at the onset of the pandemic, according to a report by The Capital Quest.

The Capital Quest report had said Ola, operated by ANI Technologies, was one of the worst-hit technology start-ups in India as many companies switched to a work-from-home routine and physical distancing norms curbed demand for travel.

It said the company’s revenue plunged around 95 per cent after India imposed a lockdown in late March 2020, Aggarwal had said then.

The report claimed that this had likely prompted a fund managed by Vanguard Group to slash Ola’s valuation by 45 per cent in dollar terms between December 31, 2019 and June 30, 2020. Ola was valued at over $6 billion in 2019. This came down to around $3.3 billion as Vanguard marked down the value of its holding, according to the report.

“Travel and transport is among the hardest hit sectors due to the coronavirus pandemic and has negatively impacted the valuation of the companies in this area,” said Arun Natarajan, founder of private equity and venture capital deal tracker Venture Intelligence. “But it is really remarkable for the company (Ola) to raise money in such a situation and an investor like Warburg Pincus is stepping in.”

For instance, Gurugram-based Shuttl is reportedly said to be winding up its operations due to the impact of the Covid-19 and is  exploring merger and acquisition opportunities.

However Ola’s ride-hailing business is recovering after the coronavirus pandemic’s hurt and demand for its food business and financial services improves. Ola is also setting up a Rs 2,400-crore electric vehicle facility expected to become the world’s largest two-wheeler factory.

“The ride-hailing business recovery for Ola has been super strong,” said a person. “There are clearly structural shifts as people prefer cabs and autos instead of public transport due to the fear of catching the virus.”

The funding also comes at a time when the company is planning for an IPO, though it did not reveal any timeline. According to the sources, Ola is planning to go public in the next few years and it is aiming to do it in the India market. The focus of the firm is on building sustainable, self-sufficient, profitable and long-term institutions. Analysts said it may target a valuation of about $12 billion for its listing.