Russia’s Digital Sky Tech leads US$450m funding round for China bike-sharing start-up Ofo

PUBLISHED : Wednesday, 01 March, 2017, 7:04pm
UPDATED : Wednesday, 01 March, 2017, 10:41pm

Digital Sky Technologies, a Russian investment firm that invested in Facebook and Twitter, has led a US$450 million round of funding for the Beijing bicycle-sharing start-up Ofo despite the nascent “Uber-for-bikes” market in China still facing a string of challenges.

The investment marks the single largest fundraising round in China’s burgeoning bike-sharing industry and brings the valuation of the three-year-old company to more than US$1 billion.

Existing backers Didi Chuxing – often called “China’s Uber Technologies” – MatrixPartners China and Citic Private Equity also took part in the financing, Ofo said in a statement.

“We will keep leading the industry towards a rapid and sound development, providing a convenient short-distance transportation service to users across the world,” said Dai Wei, Ofo’s 26-year-old founder and chief executive, in a statement.

The funding comes less than 10 days after Ofo’s biggest rival Mobike announced it raised more than US$300 million in the last year, without disclosing its valuation. Headquartered in Beijing, Mobike’s backers include Tencent Holdings, Warburg Pincus and Sequoia Capital.

Without a clear business model yet, dozens of bicycle-sharing firms have mushroomed in China as venture capitalists bet on the app-enabled services to reignite the Chinese passion for bikes, which were the most used transport in China in the 1980s and early 1990s.

But the services are facing a string of challenges in China, ranging from vandalism to theft of bicycles, because service providers such as Ofo allow users to hail a bicycle using their smartphones and return them whenever and wherever they want, instead of at set locations.

The painting of stolen bikes different colours to disguise them for private use and even selling bikes online have been grabbing more headlines in local media as the tech-savvy bike-sharing services expand to more cities on the mainland.

“The service is easy to use in closed zones, such as campuses or industrial parks, but when it expands to an open environment, penetrating into more parts of society, it is bound to meet challenges,” said Wang Xiaofeng, senior analyst with Forrester Research.

She added that some local regulators in China aren’t happy about the services, which compete with government-funded public bike schemes and put pressure on urban management as some riders park the bikes in inappropriate areas.

When [the service] expands to an open environment... it is bound to meet challenges
Wang Xiaofeng, Forrester Research

Despite the challenges, the cash raised by Ofo and Mobike will enable them to expand to more mainland cities and add more bikes to the market.

“With enough market share and users, the bike-sharing firms which survive in the end may have potential to make money via advertisements,” said Wang.

In Ofo’s case the service, which started as a campus-based programme, has brokered more than 300 million rides and has more than 20 million users with operations in nearly 40 cities in China, the US, Singapore and Britain.

There are about 640 bicycle-sharing systems operating around the world, with more than 640,000 bikes in use. It is a market that may expand 20 per cent annually to generate as much as US$5.8 billion in sales by 2020, according to a forecast by consultancy Roland Berger.