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Bike-sharing firm Ofo is the dramatic decline of a warning to China tech investors

BEIJING/SHANGHAI (Reuters) – On the sidewalk of Shanghai and Beijing, once the bright-yellow Ofo bikes are in various states of decay – chains aggressively, wheels, buckled and the paint starts to fade – a reflection of the rapid rise and sharp decline of the Chinese bike-sharing startup.

FILE PHOTO: A worker transports bikes of bike-sharing start up of the Ofo in Beijing, China, 20 December 2018. REUTERS/Thomas Peter/Photo File

Millions Ofo users have been clamoring for their deposits to be returned, and the company founder has admitted to consider bankruptcy.

Ofo’s fate is a warning for China’s tech investors who plowed tens of billions of dollars in loss-making activities, such as bike sharing, ride hailing, and food delivery. Not so long ago, So was racing in foreign markets and the increase of billions of the lender, including Alibaba Group Holding Ltd (BABA).N) and Didi Chuxing.

“It turns out, bike sharing is the stupidest of things, but the smartest brain of China tried to get down,” Wu Shenghua, founder of the now bankrupt bike-sharing company 3Vbike, told Reuters. “It is really now seems ridiculous.”

Ofo is a phenomenon. The dock-less cycling, which could be retrieved by scanning a QR-code and links everywhere, grew out of Beijing’s campuses to become an icon of young, urban cool. The company gained a valuation of $ 2 billion.

The bike – and that of the main competitors Mobike could be found on almost every street corner, often in staggering numbers. Ofo’s ads featured the most important Chinese pop stars, and showed the trendy young people steps around the hippest areas of the city.

Dozens of smaller competitors emerged in China over the past two years, only to go out of business, making Ofo, co Alibaba-backed Hellobike, and Mobike, supported by the Chinese social media and gaming giant Tencent Holdings (0700.HK), as the main players.

But costly battle for market share, was the Ofo and its rivals have struggled to turn popularity into profit. Ofo the survival of the human species is now in danger as the debt to suppliers arise as a result of the user and the requirements for the deposits have mounted.

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

“It is very similar to e-mail. It has a lot of advantages for the society, but none of the e-mail providers were able to put a barrier to entry, so anyone could host e-mails, and eventually no one could deserve.”

GLOBAL EXPANSION

At its peak, So had the bike fleets in more than 20 countries, from France to Australia and the United States. Company insiders, however, said it tried to grow too fast, and was confronted with a wide range of problems of the prevailing vandalism, as well as the rising costs.

“In retrospect, of course, there was a problem with the management, and we were expanding too fast,” said a former Ofo executive who worked on the international expansion, the question to be called.

The company has pulled back from markets such as Israel, Germany and the United States, and is forced to sell assets, including a number of bikes for as little as $2, the person said.

Ofo and Alibaba did not respond to requests for comment.

The former executive pointed to an unsuccessful push in Japan, where the company was looking to expand in a partnership with SoftBank Group Corp (9984.T). That plan went sour after a failure in acquisition talks with SoftBank-backed Didi Chuxing, said the director.

With the bike sitting in storage, costs piled up. “We lost a lot of money, and now the bikes are still stuck in warehouses,” said the director.

Didi declined to comment, but pointed to previous statements to say that it had never intended to buy Ofo and promised to keep in support of the “independent development” in the future.

CREDIT BLACK LIST

In China, once-loyal users have enabled Ofo, lining up at its offices in Beijing to demand the return of the deposits paid up-front to use the service. More than 12 million people have so far to refund online.

Jiang Zhe, 21, a student at the university in Beijing, said he usually bought a month pass for the Ofo cycling, but has lately struggled because so many are broken. “I have not yet used Ofo recently, because I can’t find any work in cycling,” he said.

He is now one of the many who have a refund.

In a letter to employees last week, Ofo CEO Dai Wei said that the company is difficult to resolve a cash shortage, partly as a result of the user refunds as well as payments to suppliers. He said that the company was fighting in the middle of “the pain and the hopelessness”.

A court in Beijing has posted Dai on a credit blacklist that restricts him from going to fancy hotels, first class travel or send his children to expensive schools, according to the court’s Dec. 4 to be seen by Reuters.

Slideshow (6 Images)

The rare near-implosion of a wildly popular and innovative company in China is afraid that some of the authorities. The transport ministry said on Friday it was the question Ofo to optimize the return procedure, but also called on the public to be more “tolerant” to domestic innovation to thrive.

Many were not convinced, including the former Ofo executive.

“It would be difficult for the company to return to the golden days, I don’t think it can be as before. I think most people are really just waiting for the last days,” he said.

Reporting by Pei Li in Beijing and Josh Horwitz in Shanghai; Editing by Adam Jourdan and Muralikumar Anantharaman

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