Where angels fear to tread: bankrupt Bopai the latest O2O venture in China to fall victim to hasty overexpansion

Online car-washing services provider was valued at US$600 million a year ago

PUBLISHED : Wednesday, 06 April, 2016, 3:40pm
UPDATED : Wednesday, 06 April, 2016, 9:52pm

Bopai, a Chinese online-to-offline company that deals in auto services, declared bankruptcy yesterday despite landing B Series funding of 101 million yuan (US$15,6 million) last year, joining a wave of once-promising e-commerce start-ups that have shut down recently on the mainland.

Local media reported in December that the company, formally known as Bopai (Beijing) Automotive Technology Service Co., was closing down its main office in the capital due to cutthroat competition.

As of February, over 800 O2O companies that landed A Series financing in 2014 had burned through their investments in China and been shuttered, according to the government-run Guangzhou Daily.

Those that provide car-washing services were hit particularly hard, with E Car Wash, Easy Car Wash and Kungfu Car Wash all closing last October, following in the footsteps of Cloud Car Wash in Shanghai and Car8.

Bopai announced the decision to fold yesterday on its official WeChat account, a mobile messaging platform run by China’s social titan Tencent, according to tech news website iheima.com.

Some analysts believe it fell victim to its unbridled business development plans.

“Bopai was overly ambitious in attempting to expand its market share to too many cities. It burned out too much cash in subsidies to attract users,” Gu Ying, a graduate of City University of Hong Kong, told the South China Morning Post.

Gu also set up TT-Kuaiche, a mobile car-washing app that swiftly expanded across the mainland in 2014.

Tech news website iheima.com said Bopai, once considered at the top of its game in that sector, had been short of funds since September.

Why tech-savvy Shenzhen has left Hong Kong at the starting gate

China’s O2O sector,which usually requires an in-store pick-up of goods or services offered online, began booming n 2014 and peaked early last year after Beijing unveiled its Internet Plus policy. This was aimed at integrating online services into traditional businesses to stimulate economic growth.

But a

Set up in April 2014, Bopai was valued at US$600 million as of March last year after it received US$18 million funding from three Chinese venture capital investors - e-commerce giant JD.com, BitAuto and InnovationWorks.

It opened several brick-and-mortar maintenance shops late last year to carry out paintwork and sheetmetal jobs, but found itself unable to scale its business to the size of its customer base.

It had over 1,400 mechanics, a fleet of more than 400 cars in 22 Chinese cities, and 150,000 orders a day on average. It had been paying over 6 million yuan a month in salaries.

“It was all good and fine to pay high subsidies for a bigger market share back in 2013 and 2014 when everything looked rosy and venture capital funds in China and the US were eager to invest in local technology start-ups,” Gu said.

“But things have changed. Venture capital funds are now approaching Chinese projects with greater caution. They are moving out of the mainland market and turning to the US and even India,” he added.

“It is becoming harder this year to attract second or third rounds of financing.”

He said he has heard rumours that scores more O2O companies will be shuttered in China this year.

“And more is yet to come,” he said.

“They all found their angels were no longer willing to foot the bill.”

Meanwhile, Gu’s TT-Kuaiche landed its second round of financing late last month, attracting US$30 million from online media company Sina and Sequoia Capital China, a local arm of the California-based venture capital firm.

TT-Kuaiche was expected to hit 10 million users by the end of last year, with sales reaching 100 million yuan. But Gu said the app must put the brakes on its expansion and make more of its services profitable if it is to survive.

“Now we have 8 million users. Market share is important, but we are focussed on creating cash flow from our operating activities,” he said.

“We won’t burn through all our money just to grow the number of daily orders. We need to prove to our investors that we can also be profitable in the short term.”