On-demand ride service Didi Chuxing took a big step forward in meeting its global ambitions last week by paying a reported $600m for a majority stake in Brazil-based ride hailing platform 99.
99 was founded in 2012 as 99taxi and has accumulated 14 million users spanning more than 500 Brazilian towns and cities. Its biggest competition is US-headquartered Uber, which has roughly the same number of users spread across fewer cities, but Cabify and Easy Taxi are also notable participants in the country and signed a partnership agreement in June 2017.
China-based Didi Chuxing increased its stake in 99 from 30% to 90% through the transaction, two people with knowledge of the deal told the New York Times, the company having previously led a $100m round for 99 in January 2017. It is also investing a further $300m in the service, according to TechCrunch.
Qualcomm Ventures, the corporate venturing subsidiary of mobile semiconductor producer Qualcomm, exited 99 through the transaction after backing a 2013 round and a $25m round two years later along with Monashees and Tiger Global Management.
Telecommunications firm SoftBank invested $100m in the company in May 2017 but its long-term alliance with Didi Chuxing – one of its portfolio companies – essentially means it will retain a strategic interest in 99. SoftBank has been a key investor in Didi Chuxing, supplying more than half of the $9.5bn in funding it closed last year.
Didi Chuxing has offered assistance to 99 in the form of technology, operations and market expansion since its initial investment, and it plans to increase that as a direct owner. The extra funding combined with Didi Chuxing’s existing expertise in the market will likely see 99 expand rapidly, as both companies stated.
Peter Fernandez, 99’s chief executive, said: “We are confident that being part of Didi Chuxing will vastly enhance our capability to expand our services throughout Brazil to bring critical value to users, drivers and cities.”
Cheng Wei, founder and CEO of Didi Chuxing, added: “Building on the deep trust between our two teams, this new level of integration will bring to the region more convenient, value-added mobility services.”
The deal means Didi Chuxing, already the market leader in China, owns a key counterpart in Brazil while also holding stakes in players in the US (Lyft), India (Ola), Southeast Asia (Grab), Careem (the Middle East) and Eastern Europe (Taxify). It also picked up a stake in Uber as part of its acquisition of UberChina in 2016.
Didi Chuxing’s investments point to growth in two areas. The first is geographical, as illustrated above. Its takeover of 99 gives it a foothold in Latin America that could provide a base to expand into nearby markets like Argentina, Chile and Colombia, which in turn could act as a prototype for similar moves in other regions.
The other, potentially more interesting area is lateral. In addition to its activity in funding direct counterparts, Didi Chuxing has also increasingly begun spending money on strategic investments in adjacent sectors. It reportedly acquired bankrupt bicycle sharing service Bluegogo last week having already built up a 25% stake in one of the Chinese market’s two largest participants, Ofo.
Bicycle rental would be significant enough but the company provided $200m in funding for automotive e-commerce marketplace Renrenche in a September 2017 deal that involved the latter’s services being offered through Didi Chuxing’s app, and acquired 19Pay, an online payment platform launched by communications technology producer GoHigh Data Networks, for $45m last month.
A geographic expansion would provide a significant headache for Uber, but it is perhaps the strategic deals that will have a greater impact in the long term as it points the way toward app-based, on-demand transport effectively being controlled by a small group of investors.
Or to put it another way, one key investor. SoftBank may be Didi Chuxing’s largest shareholder but, either on its own or through the $98bn Vision Fund, it also owns direct stakes in Grab, Ola and, as of this week, a 15% share and two board seats in Uber.
This obviously raises significant questions concerning conflicts of interest. If SoftBank and/or Didi Chuxing either own or hold substantial stakes in more than one key competitor in many of the world’s markets (Didi Chuxing and its portfolio companies now cover 60% of the world’s population), what implications does that have for competition?
Moreover, some corporate venturers will be asking, what does it mean if we’ve invested in those companies? If the 99 deal is anything to go by, they may well end up with a golden handshake and a farewell as they’re gently, but firmly, pushed out the door.