Alibaba (officially) saddles up for bike-share race

Leading a $700 million-plus round for Ofo – after its affiliate Ant Financial’s previous investment – Alibaba is now taking on Tencent in China’s bike-sharing battle.
Yellow bikes belong to Ofo
Yellow bikes belong to Ofo

Dai Wei, the 26-year-old co-founder and CEO of yellow-hued bike-sharing platform Ofo, made a telling comment earlier this year.

Speaking on completion of the firm's $450m D-round financing on March 1, Dai told reporters: "The real race will begin in July."

On Thursday, it became clear what he meant; the Beijing-based start-up announced it had raised more than $700 million in Series E funding, led by perhaps the biggest name yet to take a slice of China's bike-sharing craze: e-commerce behemoth Alibaba Group.

The announcement came less than a month after bike-sharing rival Mobike raised $600 million from a consortium led by another massive name: online giant Tencent.

Alibaba's investment in Ofo didn't come out of the blue. Its e-commerce affiliate Ant Financial made a strategic investment of undisclosed size in April.

Hony Capital and existing investor Citic Private Equity led the E-round along with Alibaba. Existing backers Didi Chuxing and DST Global also participated. CEC Capital Group, a Chinese boutique investment bank formerly known as China eCapital Corporation, acted as the financial advisor to Ofo.

Ofo did not reveal its new valuation post the capital injection, although Bloomberg reported on June 9 that Ofo had been seeking roughly $500 million at a valuation of about $3 billion. An Ofo spokesperson didn’t return calls for confirmation. It last disclosed a valuation in April, after Ant Financial’s investment, when Dai said it was worth “more than $2 billion”.

“Ofo redefined the short-distance travel and conveyed positive value to the society by having more people to join the low-carbon life. Alibaba recognises Ofo’s leading status in the industry and its open platform strategy,” Joe Tsai, Alibaba executive vice-chairman, was quoted as saying in the statement announcing the deal.

With this investment, “Alibaba is officially in,” said an early investor in Ofo. It is now backing the most contested venture sector in China – with frontrunners Ofo and Mobike having collected more than $2.4 billion between them from investors, according to FinanceAsia calculations. Dozens of other contenders have raised hundred of millions more between them.

The interest from internet giants like Alibaba and Tencent comes as no surprise. As a Shanghai-based executive director at a China-focused foreign private equity house previously told FinanceAsia: “[Bike-sharing business] carries some strategic properties in connecting mobile payment, Internet of Things, digital mapping and data generation…which no major tech companies want to risk missing”.

After registering an account and paying a deposit, wannabe cyclists pay just a few cents – or, in reality, nothing, due to heavy subsidies – for a 30-minute ride. Ofo allows users to scan a QR code on their bikes to unlock them, while Mobike’s flashier models have GPS function and smart locks, making them easier to find and use. Neither requires cyclists to return bikes to fixed docking stations.

Mobike is now available on Tencent’s flagship social media platform WeChat, while $50 billion ride-hailing giant Didi Chuxing added Ofo to its portal. Ant Financial allows Ofo riders to use its credit-rating system, Sesame Credit, to rent bikes without paying a deposit.

Investor tension

Ofo, Mobike funding.
Click for full view

The front-running duo are often found in head-to-head competition – both on the street and in fundraising (click on the graph for the full image). The same is true of their respective investors.

A June 19 spat on Wechat between Tencent’s Pony Ma and Allen Zhu, managing director Ofo’s backer GSR Ventures, brought public attention to the tension.

It started when Zhu shared on his WeChat Moments feed a report from research firm iResearch which said Ofo acquired more than six times as many customers as Mobike in May. He commented “that is basically consistent with what [I] counted on the street”.

Tencent’s Ma then replied to Zhu’s post saying the opposite was the case. He cited data from Tencent’s payment system WeChat Wallet, via which users can pay for Ofo and Mobike services. He added Ofo’s absence of smart locks in its fleet meant it couldn’t compare to Mobike in terms of value and growth prospects.

Jeffrey Li, managing partner at Tencent Investment, later also joined the debate. For around two hours, the three went back and forth for several rounds of debate, according to a screenshot Zhu later shared – again on his Wechat Moments page – of which FinanceAsia obtained a copy.

Besides Tencent, Mobike’s big-name backers include Temasek, Warburg Pincus, Hillhouse Capital and Sequoia Capital China.

And now, with their respective largest single fundraising rounds to date, Mobike and Ofo both have the ample warchests for their summer race at home and even abroad.

The sunny summer is an obvious period for bike-sharing companies to boost their business, offering Mobike and Ofo what their investors call a “golden time” to squeeze out smaller players and also accelerate the fundraising and customer acquisition race between them.

Ofo said it now planned to cover 200 cities by the end of 2017, including in foreign markets like the UK, the US and Singapore. Mobike also said in June it aimed to cover 200 cities worldwide by December and would use the fund raised to invest in the Internet of Things – the concept of connected smart devices sharing data between them – and artificial intelligence technology.

¬ Haymarket Media Limited. All rights reserved.
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