China bike-sharing player Ofo gets $700m Series E round

Hony Capital, CITIC Private Equity, DST Global and local ride-hailing platform Didi Chuxing also invested in the round. Alibaba’s participation follows an announcement in April that Ant Financial, the internet giant’s financial services affiliate, would invest an undisclosed sum in Ofo.

The Ant Financial investment came weeks after Ofo received a $450 million Series D round led by DST. Other commitments were made by Didi, CITIC Private Equity, Matrix Partners, Atomico, Coatue Management and Macrolink Group. Ofo’s total fundraising – over the course of about two years – now totals more than $1.2 billion. Earlier this year, the company was said to be worth over $2 billion.

Ofo launched on the campus of Peking University in 2015 as part of a student bike-sharing project. Six co-founders pooled their savings and borrowed cash wherever they could to provide the RMB150,000 ($21,800) required to get the business off the ground. Now it claims to be the world’s largest bicycle-sharing platform in terms of fleet size and market share.

The bulk of operations are in China, but Ofo has expanded into the US, UK, and Singapore. The company claims to have provided over two billion rides to around 100 million users since inception. At present, it connects in excess of 6.5 million bikes to riders in 150 cities across five countries. There are plans to be in 200 cities by the end of the year.

According to Ofo co-founder Wei Dai, this capacity for expansion is largely the result of the inefficiency of existing programs: Users can only pick up the bikes at specific locations so adoption rates are low. “The explosive growth of bike-sharing in China is because of business model innovation – users can pick up and park bikes anywhere at any time. It’s much more convenient and also very profitable. In some Chinese cities, we are already recording net profit margins of 40%,” he told AVCJ in April.

Alibaba said in a statement that backing Ofo fits in with its strategy of finding investments that bring long-term value to the company and its ecosystem. “Ofo has redefined short-distance commuting, enabling a low-carbon footprint experience and delivering value to users and society,” said Joe Tsai, the firm’s executive vice chairman. “Ofo is the industry leader, and we support its open-platform strategy.”

Ofo and Mobike are the two largest participants in the bike-sharing battle that has broken out in Chinese cities over the past 18 months. Mobike – which has also raised over $1 billion and claims a $2 billion-plus valuation – operates in 100 Chinese and Asian cities with more than five million bikes available. Its machines are orange, to Ofo’s yellow, and feature GPS-enabled smart locks. Ofo’s locks are not as sophisticated but it is working with a partner on upgrades.

Concerns have been expressed about the amount of capital entering the space. Start-ups are burning through capital as they compete for market share by increasing the size of their bike fleets and subsidizing users through mechanisms such as waiving the deposits paid on opening accounts. However, the asset-leasing business model is a source of comfort for some investors.

“The company [Ofo] can control the cost of running those assets – in this case, bicycles – and generate revenue from customer usage. If you can reach the right usage per bike, you will make money,” Jingyang Wu, a managing director at CITIC Private Equity, told AVCJ earlier this year. “But this depends on a set of assumptions that need to be rigorously studied and tested – the lifespan of a bike, usage frequency per bike, manufacturing and maintenance costs.”

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• Topics
• Greater China
• Expansion
• Technology
• China
• Alibaba Group
• Hony Capital
• Citic Private Equity
• TMT
• Venture
• Growth capital
• DST Advisors
• Transportation