Bike-sharing firm’s fall, a warning to China’s tech investors

Millions of Ofo users are clamouring for their deposits to be returned and the firm’s founder has admitted considering bankruptcy.

Ofo’s plight is a warning for China’s tech investors, who have ploughed tens of billions of dollars into loss-making businesses such as bike sharing, ride hailing and food delivery. Not long ago, Ofo was racing into markets overseas and raising billions from backers including Alibaba Group Holding Ltd and Didi Chuxing.

“It now appears bike sharing is the stupidest business, but the smartest brains of China all tried to get in,” Wu Shenghua, founder of now bankrupted bike-sharing company 3Vbike, told Reuters. “It really now seems ridiculous.” Ofo was a phenomenon. Its dock-less bicycles, which could be picked up by scanning a QR code and left anywhere, grew from Beijing campuses to become an icon of young, urban cool. The firm garnered a valuation of $2 billion.

Its bicycles - and those of main rival Mobike - could be found on almost every city street corner, often in staggering numbers. Ofo’s advertisements featured major Chinese popstars and showed trendy youngsters pedalling around the hippest areas of town.

Dozens of smaller rivals emerged in China over the last two years, only to go out of business, leaving Ofo, fellow Alibaba-backed Hellobike, and Mobike, backed by Chinese social media and gaming giant Tencent Holdings, as the major players.

But costly battles for market share have meant Ofo and its rivals have struggled to turn popularity into profit. Ofo’s very survival is now at risk as debts to suppliers have come due and user demands for deposits have mounted.

“It’s a very tricky business, all the profits are eaten away by competition. It’s something that really needs to be part of a bigger business,” said Maxwell Zhou, founder of tech startup metaapp.cn and a former employee of Mobike in China.

“It’s very similar to email in that way. It has a lot of benefits for society, but none of the email providers were able to create a barrier to entry, so anybody could host emails, and eventually nobody could make any money.”