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.

Like the ride-hailing wars a few years ago, when market leaders Didi and Kuaidi eventually merged after dishing out subsidies that at one time paid commuters to take rides, the short-term bicycle rental industry is also heading for consolidation.

Ant Financial’s investment in Hellobike came at a time when a number of Chinese bike-sharing brands, including Mingbike, Wukong Bike and Bluegogo, were going bust. Founded in 2016, Hellobike is strong in the smaller cities in China, said GGV Capital’s Tung.

GGV Capital invested in earlier rounds of fundraising for Hellobike, led by Jixun Foo. It did not participate in any fundraising activities of Mobike and Ofo, the two leading Chinese bike-sharing brands that have been used by 49.4 per cent and 52 per cent of active bike-sharing users in China, respectively, according to the Beijing-based research agency Analysys.

Only 4.4 per cent of active bike-sharing users have a Hellobike app, according to an Analysys report for the month of October. As some users install more than one bike-sharing app, the combined figure exceeds 100 per cent.

Alibaba Group, which owns the South China Morning Post, said it would not comment on market speculation. Ant Financial also declined to comment on its investment in Hellobike. Ofo, Mobike and Hellobike did not immediately respond to requests for comment.

Additional reporting by Meng Jing