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17 August 2015

Big Deal: GrabTaxi nabs $400m

The SoftBank-backed ride sharing company has now raised $740m in under two years, and will use the cash to fund an expansion push in Southeast Asia.

Author: Robert Lavine, News Editor

 Note: A subsequent company statement set the size of the round at $350m and disclosed China-based ride sharing service Didi Kuaidi as an investor.

Singapore-based ride sharing service GrabTaxi has closed a series E round featuring internet and telecommunications company SoftBank at $400m in what the global ride sharing industry's latest funding salvo, the Wall Street Journal reported on Friday.

GrabTaxi raised the first $200m of the round in July, with hedge fund Coatue Management leading the tranche and SoftBank and hedge fund Tiger Global Management also participating.

The round has now been expanded to $400m after an investment by Chinese sovereign wealth fund China Investment Corp (CIC), a person familiar with the situation told the WSJ. The round valued GrabTaxi at between $1.6bn and $1.8bn post-investment.

Launched in Malaysia in 2012 as MyTeksi, GrabTaxi operates a mobile app that enables users to book rides from a fleet of freelancing drivers. It first has since relocated its headquarters to Singapore, rebranding outside of Malaysia and expanding into Singapore, the Philippines, Indonesia, Vietnam and Thailand.

Like several of its international counterparts, GrabTaxi has grown extremely quickly in the past year, hoovering up funding as it goes.

The company secured $15m from China-based online travel agency Qunar, GGV Capital and the Thailand state-backed Vertex Venture Holdings in May 2014, grabbing another $65m from Qunar, Vertex Ventures, Tiger Global and Hillhouse Capital Management just five months later.

SoftBank then paid $250m in December for a reported 40% stake in the company, adding to the stake in India-based ride sharing service Ola it acquired in October 2014. GrabTaxi has now raised $740m altogether in less than two years.

The investment highlights the rapid growth in e-commerce, and in particular cab hailing apps, across Asia as regional players scramble to carve out a firm position in the market before better funded rivals begin to spend big on customer acquisition.

GrabTaxi intends to use the money to expand beyond the 22 Southeast Asian cities in which it operates and is perhaps fortunate that larger markets such as China and India are where the larger battles are currently taking place.

The company’s largest local rival is Easy Taxi, the service launched by e-commerce holding company Rocket Internet in Brazil in 2011 which is currently present in 10 cities across Vietnam, Thailand, Singapore and Malaysia.

In addition to being better funded, GrabTaxi has an advantage over Easy Taxi in that it is locally headquartered and more specifically focused on the local market, whereas Easy Taxi is stretched across 240 cities and 30 countries. It has the tools to expand far more quickly, establishing a base that will hopefully be resistant to encroaching competitors.

The fact that GrabTaxi will eventually have to fight off those competitors is practically a certainty. Uber is already present in some of the area’s largest cities, but GrabTaxi is fortunate that Uber's priorities currently lie in more populous nations such as China and India, where it is bankrolling turf wars with the likes of heavily backed local players Didi Kuaidi and Ola.

This means GrabTaxi can compete aggressively in a market where drivers as well as customers are up for grabs.

In a sense, the battle GrabTaxi is fighting is mirrored in India, where Ola is competing against Uber’s billion-dollar local push and e-commerce marketplaces Flipkart and Snapdeal are raising considerable amounts of money to fend off US-based Amazon.

However, the more money these companies raise in order to support expansion, marketing and price competitiveness, the bigger a gamble these investments may become. Bloomberg reported in June that Uber had made a $470m operating loss, though it could not confirm the time frame in which that took place, but the question remains: at what point, and how, can any of these companies expect to make a profit?

The answer can perhaps be hinted at by the identities of the companies’ investors. As mentioned before, SoftBank is also an investor in Ola; Tiger Global has funded both Ola and Didi Kuaidi, the latter of which also counts Coatue and CIC as backers. The list of common stakeholders in the three firms leaves open the possibility of a strategic alliance or even a future merger.

While Uber needs to expand in order to meet the sky-high valuation at which it continues to raise cash, it could be argued that Asia’s regional players would be better suited to respecting each other’s territory and consolidating their own. Their best bet may be to use their local knowledge of their markets to set down roots while hoping that Uber is forced to stretch its resources too thinly to win against them in the long term.

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