VCs are betting big on radio taxi services

Five deals worth $30 million had taken place in 2013 against $7 million in 2012. 

The radio taxi services segment has witnessed 21 deals worth about $103 million in the past seven years.

Tapping the fast-growing Indian consumption story, venture capital (VC) players are betting big on the radio taxi services space.

The VCs are bullish, as India has a massive, untapped market opportunity in cab aggregation.

There are about 600,000 taxis in the unorganised sector that can be aggregated, which is a $2.5-billion opportunity.

…

Five deals worth $30 million had taken place in 2013 against $7 million in 2012. The radio taxi services segment has witnessed 21 deals worth about $103 million in the past seven years.

Sanjeev Krishan, leader (private equity and transaction services) at PricewaterhouseCoopers Pvt, said: “This is an interesting space, but competition is hotting up now - largely this space facilitates and rides the consumer theme, which has had the biggest mindspace for PE funds in recent times.”

Last year had witnessed deals such as $20 million follow-on investment by Tiger Global and Matrix India in ANI Technologies which run Olacabs, VC investments in Savaari Car Rentals and Taxiforsure.com.

When large private equity funds such as India Value Fund Advisors have shown interest in fleet operators, venture capital firms are aggressively funding into taxi booking sites and other related spaces.

…

Another Bangalore-based online cab booking service provider YourCabs.com has also raised angel funding from Sprism Investment in 2012. Taxiguide, an online car rental booking service, had also raised angel funding in same year.

Ritesh Banglani, director at Helion Ventures, who sits on the board of Serendipity Infolabs, which runs Taxiforsure.com, said: “Once the taxi transaction comes online, it provides predictability, reliability and transparency for the consumer. For the driver, the number of trips per day increases and ‘dry usage’ (trips without a passenger) reduces, giving a significant boost to his income. At Taxiforsure, we have seen the average income of drivers go up by 88 per cent after joining the aggregator.”

With more players entering the market, a strong consolidation is imminent, believe VC investors. Also, global VC investors, as well as strategic buyers who want to reap a pie of the Indian consumption, are also entering the space.

…

Sanjay Nath, managing partner, Blume Ventures, said: “The success story of India-based technology-driven players makes the model a novel asset-light big hit among investors looking for high potential, high-return technology-based business models. With the entry of Uber (luxury car booking service backed by Google) and the plans of various international players to enter Indian market, the interest in the space is pretty evident. Exit options are aplenty for the space right now with more takers in the investor circle as well as in the IPO market.”

The industry expects 30-40 per cent growth annually, on the back of rising demand for car rentals from the middle-class and demand for luxury cars for special occasions.

…

“From the time when cars were hired only for long-distance travels since it cost a lot of money, customers today are not wary of travelling short distances by rental cars, since prices have dropped. Players have also become aggressive to tap an active customer base. Hiring a Mercedes or Audi for a wedding which was earlier unimaginable for a middle-income family is now lighter on the pocket, thanks to more players and intense competition,” said the CEO of a firm operating in the luxury car rental space.

However, the real challenge is to reach the uncharted territory of the rural areas. As a Mumbai-based angel investor points out, “While companies keep increasing their fleet size and the new locations, nobody has made big plans to venture into smaller towns. That is where the real market is and that is where they need to go to expand their business."

Investors say that this segment is marked by the lack of good and reliable service, hence new players are welcome. The average investment period is usually five to eight years from investment.