Didi Chuxing, a ride-hailing company similar to the American ride-sharing companies Lyft and Uber, has recently raised more than $5.5 billion from investors in its latest round of funding. This record amount of funding will help the company expand out of China and into international markets. It will also allow Didi to invest in emerging technologies like automated driving and compete with technology companies currently developing self-driving technology like Alphabet Inc., Apple Inc., Tesla Inc. and Uber Technologies Inc.
Didi is one of China’s most funded private companies, with funding from state agencies in China and venture capital firms based worldwide. The list also includes Tencent Holdings Limited, a Chinese investment holding company whose subsidiaries provide many different services in various industries in China. The company is also one of the largest internet companies worldwide by revenue.
According to TechCrunch, sources close to the company disclosed that the recent investing round raised Didi’s valuation to over $50 billion, which is up from its previous valuation of $34 billion. A number of new investors have joined the funding pool, including Apple, which has invested $1 billion in the company. This new valuation places Didi as the world’s most valuable startup after Uber, which, as of press time, has an estimated valuation of around $68 billion.
Cheng Wei, 33, founded Didi Chuxing and is currently the company’s CEO. Cheng founded Didi five years ago, after leaving Alibaba, a Chinese online marketplace company, as a salesman. He and a number of his ex-Alibaba colleagues started the company with capital from an Alibaba executive who supported Cheng, and initially started the ride-hailing service in Shenzhen. Cheng competed with other ride-sharing services present in China by trying to be available when other ride-sharing services were not, spending money on discounts and giving subsidies to customers in an attempt to get more daily orders of the service. The company has also been active through the direct acquisition of some rival taxi-hailing companies.
“By the time we were actually about to launch the service, about 30 companies emerged at the same time,” Cheng stated according to Bloomberg. “There were different models. Some companies were much more powerful than us.”
China is a market many Wall Street investors and companies see as pivotal because of its large, increasing middle-class population. This new middle class is receiving more discretionary income than ever before, which firms hope will encourage more spending. It represents untapped growth potential for companies that can secure a foothold in the country. However, it is also notorious as an impenetrable market. Many U.S. and foreign companies have tried and failed in China. Amazon, eBay, Microsoft and Yahoo have all struggled in China’s internet market.
When Uber tried to establish itself in the ride-sharing market within China, it directly competed with Didi. Didi is informally known as the “Uber Killer” because it forced the company out of China. In 2016, Uber agreed to a deal with Didi in which Didi would buy out Uber’s China division. This agreement granted Uber a 17.5 percent stake in Didi, along with $1 billion in cash, according to Bloomberg. After buying Uber’s China division, Didi became the leader in ride-sharing applications in China, valuing the company at $35 billion. The deal was proposed because in China, Uber found it difficult to stay profitable.
According to Bloomberg, Uber lost $2 billion in the past two years in its attempt to battle Didi through massive subsidies granted to its customers in the form of free rides. The two companies continued this battle using money they raised from investors: Baidu Inc. for Uber and Alibaba, Tencent, Japan’s SoftBank Group Corp. and others for Didi. However, Didi proved to be the more resilient opponent. Some of Didi’s backers included a few of China’s largest government institutions, while Uber’s investors, seeing how much money was spent by the company in China to fight Didi, called for a truce.
Uber is already profitable in the United States and Canada, but has sustained losses in developing markets, which weakened the company’s public image among investors.
Ultimately, the deal was a boon for Uber. Not only was Uber losing capital that could have been used in other ventures, but those losses would have made investors cautious about the company, and would have made it difficult to roll out an initial public offering. Now that Uber is out of China, it can focus on other markets abroad. With an almost 20 percent stake in the largest Chinese ride-sharing app in the country, Uber also has a potentially lucrative investment. Uber CEO Travis Kalanick was also granted a chair on Didi’s board as part ofthe deal.
Compared to Uber, Didi allows for much more than sharing cabs. The smartphone application can be used to hail and pay for taxis, private cars, limousines and commuter buses. Didi has expanded to more than 400 Chinese cities in under four years. According to Cheng, about 80 percent of taxi drivers use Didi to find customers.