When it comes to successful fundraising, China’s bike-sharing industry is undoubtedly a textbook case, drawing billions of dollars despite the lack of a clear business model and uncertainties around profitability.
But while the industry has seen massive capital inflow since the craze started around three years ago, there isn’t any clear exit strategy. In fact, there had not been any successful case of an investor exiting a bike-sharing investment ... until this week.
This changed on Thursday when a consortium comprising Ant Financial, Shenzhen Capital Group and Changzhou Youon Public Bicycle System agreed to acquire bike-sharing startup Hellobike for an undisclosed sum, marking the first merger in China’s heavily-funded bike-sharing industry.
In practice, Hellobike will merge with a subsidiary of Youon, a Jiangsu-headquartered operator of public bikes. Youon is China’s first and only public-listed bike-sharing company after completing an initial public offering in Shanghai earlier this year.
At the same time, Ant Financial, the payments affiliate of online giant Alibaba, and local government-backed Shenzhen Capital Group will become financial backers of the operation. This will give the new company more resources for development in sectors such as electric-bike sharing and car-sharing, Hellobike founder Daniel Yang said in an internal email seen by FinanceAsia.
By sealing the merger, Yang becomes the first major investor to cash out of the bike-sharing boom, just over a year after founding the start-up in September last year.
Game changer
Industry experts believe the Hellobike-Youon merger could be the first of many as the sector is expected to undergo a prolonged period of consolidation.
Smaller bike-sharing companies have found it difficult to compete in the market dominated by the duopoly of Mobike and Ofo, which are respectively backed by Alibaba and Tencent. Allen Zhu, managing director of GSR Ventures and an Ofo investor, has said the two industry giants command 95% of China’s bike-sharing market.
The industry saw the first drop of blood in June: Wukong Bikes became the first company to shut down after incurring massive losses. The Chongqing-based bike-sharing company lost 90% of its bikes just five months after entering into operation, according to Chinese media reports.
Hellobike is a good example of how a bike-sharing firm can benefit from merging with bigger companies. According to Yang, the company started a pilot scheme last month under which users are not required to pay a deposit, and that arrangement could become permanent now that it is financially backed by Ant Financial.
Hellobike is China’s third-largest bike-sharing firm by number of monthly active users, according to Chinese market research house QuestMobile. First started in Suzhou, Zhejiang province, the company now operates in over 100 Chinese cities and has about 40 million registered users.
