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March 18, 2015

Why TaxiForSure had to sell out

Mint has a blow-by-blow account. Hats off to Raghunandan G for being so open.

Extracts from the article - that reminded me a lot of the John Maynard Keynes quote "Markets can remain irrational longer than you can remain solvent":
Ola’s rival, across town, TFS, was watching the firm’s every move closely. Ola’s logic was clear. The company had raised Rs.250 crore in a round of funding in July 2014 and was burning money to get more customers and drivers on its platform. In the process, it was losing as much as Rs.200 on every ride. 
...On 1 November, TFS decided to play the game. It came up with a simple strategy. Thanks to the higher per km rates, consumers weren’t using the service for short distance travel. So, at the consumer end, TFS dropped rates. To Rs.49 for the first 4km and then Rs.14 per km. But at the driver’s end, it needed to incentivize drivers to pick up rides. So it held on to the old rates for drivers (Rs.200 for the first 10km). So if a customer was paying Rs.49 for a 4km run, the driver would still receive Rs.200. To put it simply, TFS was losing Rs.150 per ride.  
...Things looked good.  In early 2014, skeptics had questioned the size and scale of the Indian taxi aggregation business, but with SoftBank’s $210 million investment in Ola, almost overnight, the market was validated. Everyone agreed that it was a multi-billion-dollar opportunity. Private equity and hedge funds in the US and Hong Kong were excited. “We were bleeding,” says Raghu, “but we took a call to get aggressive. We saw a 4X jump and our investors were so happy. It was amazing. So many investors were interested in participating. And everybody was telling me, this is amazing Raghu, this is great. We can put in a large sum of money.”
Looking forward to the day when cab drivers will turn around at the end of a ride and give me cash for giving them my business. That would be Uber Cool.

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