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Taxi wars heat up: Uber rival Lyft valued at $2.5B

Armed with fresh capital and the backing of a big Japanese company, U.S. ride-sharing service Lyft has been valued at $2.5 billion as it looks to take on rival Uber.

San Francisco-based Lyft said on Thursday it had raised $530 million in a round of funding led by Japanese e-commerce giant Rakuten.

Rakuten paid $300 million for an 11.9 percent stake in the company, valuing Lyft at more than $2.5 billion. New investor Fortress Investment Group was also involved in the fundraising round.

Lyft

Three-year-old Lyft uses a smartphone app to connect riders to drivers using their own car. The service is known for the pink fluffy moustaches drivers put in their vehicles.

"With this new investment, we are closer than ever before to realizing our vision of re-connecting people and communities through better transportation," John Zimmer, co-founder and president of Lyft, said in a press release.

The company said it planned to use the money to expand into more U.S. cities, and also focus on its carpooling service called Lyft Line, which was launched last summer. Lyft Line brings together customers traveling in the same direction, so they can share a car and split the cost. In a blog post, Lyft said it would expand the service to new cities.

The latest funding follows a $250 million round last year, which included money from Chinese e-commerce giant Alibaba.

Rakuten's investment in the company highlights the growing trend of Asian companies pouring money into U.S. start-ups in an effort to get a foothold in the market. Rakuten led a $100-million funding round in social media company Pintrest in 2012, while Chinese internet giant Baidu poured money into Uber in December.

Lyft's funding should give it a boost as it battles rival Uber, although the company is nowhere near as big. Lyft has raised $860 million to date and is valued at $2.5 billion, compared to Uber's $5.6-billion of fund raising and $41-billion valuation.

Uber has had its fair share of bad publicity, however, amid concerns over passenger safety and the ethics of its management team. Lyft has tried to differentiate itself as the more community-driven service. Previously, the company encouraged riders to sit in the front seat and bump fists with their driver, but last year Lyft said this was no longer a requirement.