Exclusive | China’s bicycle-sharing industry may see more mergers soon, says venture capital firm

A merger between the top players in China’s bicycle-sharing industry is probably inevitable, as it will ensure scale and put companies on a path to profitability, according to venture capital firm GGV Capital.

GGV Capital is an early backer of No. 3 player, Hellobike, which recently raised US$350 million from investors that include the Alibaba Group Holding affiliate Ant Financial. The new funds have led to speculation over a renewed round of cash-burning competition in the industry, led by Tencent-backed Mobike and Ofo, which counts Alibaba Group as a shareholder.

“From our past investment experience, a merger is the easiest way to scale down the top three players into just two,” Hans Tung, a managing partner at GGV Capital, said in Guangzhou on Tuesday. “If one investor has invested in two firms, it will facilitate it.”

The idea for short-term rental, where customers use their smartphones to unlock bicycles for use over short distances – to the train station or bus stop – caught on in China because many people live quite far from public transport. As with many novel concepts that become popular, a swarm of “me too” companies flooded the industry, and reports of bicycles blocking pedestrian pavements and ending up abandoned in open fields and dumped in rivers soon made their rounds on social media.

There was widespread concern as billions were invested in loss-making companies that had no profit model and instead burnt through cash to build the number of users, so as to justify higher valuations in subsequent fundraising rounds to investors.