(Reuters) - Ride-sharing service Lyft said it raised an additional $530 million (353 million pounds) in a funding round led by Japanese online retailer Rakuten Inc, giving the Uber rival a valuation of $2.5 billion and adding momentum to its expansion plans.
The valuation, however, pales by comparison to one of around $40 billion for app-based taxi service Uber.
Rakuten said it is investing $300 million for an 11.9 percent stake in San Francisco-based Lyft - its first investment in a ride-hailing firm. Fortress Investment Group will also be a new investor.
Lyft and Uber, which allow consumers to order rides from their smartphones, have disrupted traditional taxi and limousine services. Uber in particular has expanded rapidly both within and outside the United States.
But they face a number of legal challenges and on Wednesday both companies failed to persuade U.S. judges to rule that their drivers are independent contractors instead of employees, in cases that have wide implications for Silicon Valley “sharing economy” firms.
Asian e-commerce and Internet giants have been particularly active of late in investing in taxi-hailing app firms as well as other well known U.S. tech start-ups.
Japan’s SoftBank Corp this year invested 70 billion yen (386 million pounds) in Travice Inc, the operator of Chinese taxi hailing app Kuaidi Dache. It also poured almost $500 million last year into Southeast Asia’s GrabTaxi and Indian app Ola, owned by ANI Technologies.
China’s Alibaba Group Holding Ltd is investing $200 million in photo-messaging app Snapchat, a source familiar with the deal said, striking its latest Silicon Valley deal as it builds up mobile services.
Rakuten, controlled by billionaire Hiroshi Mikitani, is also an active investor in start-ups and bought messaging app provider Viber Media Inc for $900 million last year.
Reporting by Teppei Kasai in Tokyo and Shivam Srivastava in Bengaluru; Editing by Edwina Gibbs