Ride-hailing companies Uber and Didi have brought many new dimensions to the startup industry, such as making billion-dollar-plus funding rounds routine.
Now, they have added another to the list: sharing big investors who are backing both companies, even though they are fierce rivals.
Uber, the leading ride service in the United States and much of the world, and Didi Chuxing, which claims 87 percent of the Chinese market for private vehicle ride-hailing, now share at least four investors: asset manager BlackRock, Chinese investment manager Hillhouse Capital Group, hedge fund Tiger Global and insurer China Life, according to investment records and sources familiar with the deals.
“It’s very unusual to allow the same parties to invest and get information rights of sworn mortal enemies. But then again, it’s also not common to raise $14 billion as a seven-year-old pre-IPO company.”
Uber has raised more than $13 billion in equity and debt financing since it started in 2009. Didi this week confirmed a $7.3 billion funding round, bringing total fundraising to more than $10 billion.
The practice of backing competitors raises concerns about conflicts of interest, information sharing and whether one company may succeed at the other’s expense, according to investors, academics, and dealmakers.
“I think it looks bad,” said Rory McDonald, an assistant professor at Harvard Business School who has done research on the topic. “These firms are still private, they are still growing and making strategic choices, and those choices are going to matter a whole lot.”
According to McDonald’s research, companies that have a link to a competitor through a shared investor are on average less competitive and less innovative than if they did not have that tie.
Uber said it does not have concerns about sharing investors with Didi and none of them had board seats or board observer seats, so they have less access to and control over the company. Didi declined to comment.