Ola Restricts SoftBank’s Rights To Avoid ‘Snapdeal Like’ Fate

With Softbank pushing Snapdeal’s merger with Flipkart, homegrown cab aggregator Ola has fastened its seat belt to protect its interests against its powerful investors. Reportedly, Ola founders have made changes in their shareholding terms in the latest articles of association (AoA) filed by its holding company ANI Technologies Pvt Ltd.

As mentioned, Ola will issue more shares to the founders Bhavish Aggarwal and Ankit Bhati, to keep their shareholding in the company between 10.9% and 12.38%. Ola recently raised another $104 Mn from RNT Capital and other existing investors and the final shareholding value will be ascertained post the closure of the deal.

Also, the new regulations have restricted the purchase of Ola shares by the investors without their consent. The document clearly states,

“Any transfer of equity shares by Ola investors representing 10% or more of the company’s capital will need to be approved by the Ola co-founders.”

Interestingly, significant measures have been taken against SoftBank Capital, which currently holds over 40% stake in the company after the last financing around. In November 2016, Softbank infused $260 Mn into the cab aggregator, thereby reducing its valuation to $3 Bn from earlier $5 Bn.

From now on, SoftBank cannot buy more equity shares in Ola, unless to maintain its existing shareholding in the company. Ola has also added terms regarding the addition of new members on the Advisory Board of the company. As mentioned, SoftBank will have the right to appoint one more director “provided that such person is reasonably acceptable to the founders, and all other shareholders.” SoftBank has already nominated one member to the Ola Board. However, this condition will not apply if, post the new funding deal, SoftBank ends up having 50% shareholding in the company.

Is SoftBank Really A Threat?

SoftBank, in the past few months, has become aggressive towards consolidating its position against loss-making entities in India. Earlier this month, it reported a $1.4 Bn loss on two major investments in India, Snapdeal and Ola. Earlier, SoftBank Group Corp had marked down close to $555 Mn in the same Indian investments, Ola and ecommerce portal Snapdeal, as per its six-monthly earnings report, ending September 2016. Later on, the company wrote off around $475 Mn in its combined shareholding value in Ola and Snapdeal, for the period ending December 31, 2016.

SoftBank founder Masayoshi San has played a key role in forcing the Flipkart-Snapdeal merger. Till date, SoftBank has invested about $900 Mn in Snapdeal and has a 33% stake. Kalaari and Nexus hold 8% and 10% stakes respectively. While the founders, Kunal Bahl and Rohit Bansal have a combined stake of 6.5% in the company.

The deal is now awaiting a final nod from the family offices of Azim Premji and Ratan Tata. Snapdeal’s most recent valuation has been reduced to $1 Bn from $6.5 Bn during its $200 Mn funding round in February 2016 led by Ontario Teachers’ Pension Plan, Iron Pillar, Brother Fortune Apparel and Bennett Coleman & Co.

Also, Snapdeal has agreed to sign a non-binding Letter of Intent (LoI) with Flipkart for the merger. The deal is expected to be signed in the next few days.

On the other hand, SoftBank is now spreading its wings into the budget accommodation space with Oyo Rooms and in digital payments space with Alibaba-backed Paytm, thereby infusing large sums of money in both the entities.

Thus, it’s believed that Ola and the clutch of other investors on board including Matrix Partners, Tiger Global, Sequoia Capital, Steadview Capital, Accel Partners and more, might have thought of taking preventive measures as the best weapon to safeguard their current position. As stated by a Mint source,

“After the Snapdeal issue, obviously entrepreneurs and VCs have become wary of SoftBank. From the point of view of (the boardroom battle at Snapdeal), Bhavish has always been ahead of the curve. He hasn’t let any one investor, be it Tiger or SoftBank, become too powerful.”

Fluctuating Investor Interest

Ola is also struggling to combat with losses that are increasing every quarter and thereby has led to falling investor’s interest. Recently, it was reported that Ola’s parent company ANI Technologies’ losses increased 2X in FY16. Ola had incurred a consolidated loss before tax of $360 Mn (INR 2,313.66 Cr) in FY16, as compared to $123.9 Mn (INR 796 Cr) in FY15.

As per regulatory filings, the consolidated revenue for ANI Technologies Pvt. Ltd (Ola’s parent company) was about $117.9 Mn (INR 758 Cr) for the year ended March 2016. The revenue is inclusive of subsidiaries such as Ola Fleet Technologies and TaxiForSure parent Serendipity Infolabs. In the previous year, this number was about $16.1 Mn (INR 103.8 Cr).

Furthermore, Vanguard Group Financial slashed down the valuation of its stake in Ola’s parent firm, ANI Technologies Pvt. Ltd by over 40%, in May 2017, but later in February 2017, it marked up the value of share by 2.62%.

In the recent filings, Vanguard stated, “ANI Technologies, the Indian online taxi-hailing business known as Ola Cabs, fell in value after raising additional capital from SoftBank. While Ola has a market-leading position in India, it faces competition from Uber; for long-term growth, the company needs the resources of an investor like SoftBank.”

Does Ola Need To Be Afraid?

Founded by Bhavish Aggarwal and Ankit Bhati in January 2011, to date, the company has raised total equity funding of $1.6 Bn in nine rounds from about 20 investors and is battling to rise against nemesis Uber.

As per a company statement, the Bengaluru-based cab aggregator allows users across 102 cities to book from over 5,00,000 vehicles across cabs, auto-rickshaws and taxis. The aggregator also provides shared mobility services like Ola Shuttle and Ola Share for commute and ride-sharing respectively.

The company recently also  launched Ola Play – a platform which brings advanced car controls, choice of personalised content and a fully-connected interactive experience for users on the move in Hyderabad, after Mumbai, Delhi, and Bengaluru.

Today, Ola, together with Google launched a Progressive Web App (PWA), which aims to enable Ola to magnify its reach to tier 2 and below cities. It is a lightweight mobile website that offers users, especially in smaller towns and cities, an app-like experience on simple smartphones, requiring a fraction of the data used by native apps.,

However, 2017 has been a mixed year for Ola where it has been facing all ups and downs. Lately, Ola has been facing licensing issues from state governments and continuous strikes from cab driver associations which apparently is an issue that Uber is also facing in India. In January 2017, Karnataka’s Transport department gave a three-day deadline to online cab aggregators, Ola and Uber, to stop their cab-sharing services in the state. Ola Share services were also deemed illegal in Karnataka, however, later they were given a 15-day extension to comply with the rules.

The Sarvodaya Driver Association of Delhi called for a strike on February 2017, demanding for better perks, accident insurance, and to be paid as per government sanctioned fare i.e. INR 21/km, among other things. However, after the Delhi Government intervened in the matter, the strike by SDAD was finally called off on February 23, 2017, after 13 days.

In April 2017, Ola’s co-founder, Bhavish Aggarwal also took a u-turn on his views regarding foreign investment and capital dumping in India and said that it was for government agencies to decide whether this was indeed happening and the steps needed to rectify the situation.

On the other hand, Ola’s closest competitor Uber is busy strengthening its foothold in the country. Uber recently launched its business solution – Central – in India, which is fully integrated into Uber for Business. It also announced its on-demand food delivery app UberEATS this month. It has partnered with 200 restaurants. UberEATS allows consumers to schedule orders, curate restaurants, personalise taste preferences and dietary restrictions, and track the delivery on the app. The service is currently available in Mumbai.

Editor’s Note

Ola’s attempt to safeguard a startup’s interest against investors is the first of its kind in the industry. In the last few years, the Indian consumer Internet sector has seen a few large consolidations including MakeMyTrip – Ibibo, Flipkart-Myntra, Jabong and eBay, PayU – Citrus Pay and more. This ongoing consolidation trend might be a hint for the loss-making entities, which are continually reaping funds at the stake of their shareholding, to stop for a while and look at improving the profitability of the company.