Online cab aggregator Ola has put itself in pole position in the cab/autorickshaw-hailing race after raising $400 million from new and existing investors.

The additional funding, coupled with the recent acquisition of rival Taxiforsure, has put Ola (formerly Olacabs) in a good position to take on Uber and Meru in the fast-growing public transportation segment.

The latest funding round — the fifth institutional round or Series E in venture capitalist parlance — was led by the Yuri Milner-backed DST Global, GIC, Falcon Edge Capital and existing investors SoftBank Group, Tiger Global and Steadview Capital.

With this, Ola has raised close to $675 million in funding overall and is estimated to be worth $2.5 billion, according to industry watchers.

Funding expansion The fresh investment will help Ola continue with its business strategy, which involves tying up with drivers and fleet owners, and expand to 200 cities from 100 now, according to company officials. The bulk of this will be to start operations in tier-2 and -3 cities from the ground up.

According to TechSci Research, the number of radio taxis plying on Indian roads has grown 10-fold between 2009 and 2013 as most towns have poor public transportation systems.

The pent-up demand for affordable transportation services has seen the likes of Uber and Meru broadening their footprint. Meru recently raised $50 million in funding and is close to raising another $100 million.

Ola CEO and IIT-Bombay alumnus Bhavish Aggarwal, who founded the company in January 2011 with Ankit Bhati, says the company will help drivers from tier -2 and -3 towns turn entrepreneurs.

Food delivery Rahul Mehta, Managing Partner of DST Global, in a statement, said that his company is impressed by the growth and potential to expand its platform into other categories.

For instance, Ola has leveraged its strength as an on-demand platform by going beyond transportation into instant food delivery, with OlaCafé, currently being tried out in four cities.

Sources in the company said that Ola will look to invest a significant chunk in building technology, providing incentives for drivers and increasing the number of fleet operators.

However, industry watchers believe that the challenges in smaller towns are a different ballgame and what worked in bigger cities will not work in these places. “Shared autorickshaws are very big in small towns and it is not easy to replace autos with taxis,” said Renil Kumar, Chairman of YatraGenie.

However, Ola officials assert that they will not replace autorickshaws with taxis and will work with local drivers.

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