Wednesday is D-day for South Korea’s ride-hailing service Tada, a smash hit since its launch just over a year ago, as it prepares for a court verdict that could potentially end its ambitious drive in one of the world’s most tech-savvy economies.
In a short period since starting services in late 2018, Tada has won 1.7 million users as it took advantage of growing demand and the funding muscle of its Japanese backer SoftBank Group Corp.
Yet, Tada’s ride hasn’t been all smooth as it has come up against increasingly tough regulations in a market that has been particularly unkind to ride-hailing apps and a taxi lobby that is an outsized political force.
Prosecutors have sought one-year jail terms for executives of Tada and its parent firm for violating transport laws, with the verdict expected Wednesday morning.
South Korea restricts ride-hailing to only licensed taxis and bans the use of private cars for the purpose. Tada has been exploiting a rule that allows the rental of chauffer-driven 11-seaters to operate its ride-hailing services, angering the taxi lobby and regulators.
If Wednesday’s verdict goes against Tada, that could raise the hurdle for further investments by SoftBank, which has already decided to indefinitely put off plans for a $500 million funding by its Vision Fund.
The discussions between Tada and SoftBank on the additional funding fell through after a ruling party lawmaker proposed a law revision in October to further restrict Tada services, a source with knowledge of the matter said.
“The bill was not expected at all, it wasn’t even in our worst-case scenario,” Lee Jae-woong, entrepreneur and head of Tada’s parent company Socar, told Reuters, declining to divulge specifics of talks with investors.
Investors could be put off as “South Korea can be seen as a country where unexpected regulation can suddenly make business impossible to operate,” he said.
Globally, ride-hailing services led by Uber have been on a bumpy ride with regulators. Uber is struggling to renew its license with London’s transport authority, while a U.S. judge has refused its request to stop a California labor law from taking effect this month.
In South Korea, a global IT powerhouse with the world’s highest smartphone penetration, Uber’s ride-hailing business was curtailed in 2015, two years after its launch, with legislation banning the use of ride-hailing service by private cars following fierce protests from the taxi lobby. Uber now offers limited services.
“If you try to jail those who dream of innovation, and create laws that ban innovation, the society will not move forward,” Lee wrote in a Facebook post on Sunday.
Tada’s parent Socar and SoftBank declined to confirm any details on the funding plan by Vision Fund, or comment on the court case.
Tada, meaning “ride” in Korean, has been an early hit among riders who, according to a private survey, were fed up with poor taxi service. Some drivers refuse customers during rush hours.
Besides SoftBank Ventures, private equity and venture capital firms have backed the company to the tune of about 161 billion won ($135.29 million) since 2018.
“Tada must…offer specific alternatives for co-existence with taxis,” transport ministry official Kim Sang-do said in December.
But Lee, previously not fond of the spotlight, has spoken out repeatedly on Facebook against the new bill and regulations, noting President Moon Jae-in’s pledge to nurture innovative startups in the country dominated by large conglomerates such as Samsung and Hyundai.
His uncharacteristic outspokenness, rare in corporate Korea, has put him at odds with policymakers.
“If it weren’t for (Lee) posting on Facebook, I think (Tada) would have closed already,” said one start-up industry source who knows Lee personally.
($1 = 1,190.0800 won)