Tech Transformers

Uber's biggest rival in India just got $1.1 billion from Tencent, SoftBank, valuing company around $7 billion

Key Points
  • Ola raised $1.1 billion from investors including Tencent and Softbank
  • It is also raising another $1 billion as part of the round which will put its valuation at around $7 billion
  • The funds will be used to boost Ola's technology, leasing program, and electric car strategy
Ola raises $1.1 billion from investors

Ola, Uber's fiercest rival in India, has raised $1.1 billion from investors including Chinese internet giant Tencent and Japan's SoftBank.

The funding will give the ride-hailing service firepower to continue fighting Uber in one of the world's largest mobile markets.

Ola revealed it is also in advanced talks to raise another $1 billion from different investors, bringing the total funding round to just over $2 billion. Following the close of the round, Ola will have a valuation of around $7 billion, a source familiar with the situation told CNBC. The source also said that U.S. investors will be involved in the second tranche of the funding round.

The start-up, which is present in 110 cities across India, said it will use the money to invest heavily in artificial intelligence technology and penetrate new areas of the country.

Timing of the deal could work in Ola's favor given the troubles at Uber. The $70 billion ride-hailing app has recently installed a new chief executive, Dara Khosrowshahi, after founder Travis Kalanick stepped down following a series of scandals. The company has also been having its own power struggles in the boardroom.

But Uber has previously noted how important the Indian market is for the company. The company said in 2015 that it would invest $1 billion in India that year.

Still, Ola has been battling hard against its American rival, trying to create localized products. Users can hail rickshaws and motorbikes, for example, which are popular in large Indian cities. Uber has followed suit, launching similar products.

The Ola app displayed on a smartphone.
Mint | Hindustan Times | Getty Images

Ola's backers are heavyweights with a lot of cash. Tencent, for example, has invested in similar start-ups to Ola such as Indonesian ride-hailing app Go-Jek. It also has a stake in Chinese firm Mobike, which offers bikes for rent via a mobile app.

Softbank is also not new to the ride-hailing sector. It recently invested in Grab, Uber's rival in Singapore, and has a stake in Didi Chuxing in China.

Ola will focus on boosting its leasing business with the new money, according to a source. It leases cars to drivers who want to drive for Ola in order to boost supply. The funding will also allow it to invest in electric cars.

The source also told CNBC that the company is prioritizing expanding across India ahead of moving into international markets, though it is not ruling that out.

"The transportation and mobility industries are seeing huge changes globally. Our ambition is to build a globally competitive and futuristic transportation system in India that will support and accelerate a nation on the move," Bhavish Aggarwal, co-founder and CEO of Ola, said in a press release Wednesday.