Mobike's Competitor, Hellobike, Seeks a USD 500 Million Funding
Ant Financial backed bike sharing startup trying to raise as much as USD1 billion
According to Jiemian, Chinese based news company, Hellobike completed two rounds of financing as of last year. The most recent funding of USD596 million (CNY4 billion) came in December 2018. Leading the round were Ant Financial, the financial affiliate of Alibaba and maker behind digital wallet Alipay, and Primavera Capital, a Chinese investment firm that’s backed other mobility startups, including electric automaker Xpeng and car-trading platform Souche. The fledgling startup also got SoftBank interested, The Information reported. This capital arrived about a year after it secured USD350 million from investors, including Ant Financial.
Co-founder Li Kaizhu said in a January interview that the company would seek a future initial public offering without specifying a time-frame.
The Ant Finance-backed company’s registered capital was reduced by nearly CNY 992 million (around USD 147.6 million) to CNY 43 million, according to the platform. The changes were disclosed on Wednesday.
In the end, this is still a proxy war between the Chinese conglomerates Tencent and Alibaba – as usual. With a faltering Ofo on its hands, Alibaba (via Didi) has turned its attention toward other promising companies such as Hellobike and Bluegogo to continue the war with Mobike, now in the hands of Tencent-backed Meituan.
The company rebranded itself as Hello TransTech from Hellobike in September to expand its services to a wider variety of transportation businesses. The company launched its carpooling service nationwide in January after its main rival Didi Chuxing suspended a similar service following the two murders of female passengers by their Didi Chuxing drivers.
It’s possible that the company is optimizing its equity structure to prepare for a new round of financing, reported TechNode.
The competition in the mainland Chinese bike-sharing market is even more cut-throat. Many smaller bike-sharing startup companies ended their services starting in 2017. The five-month-old startup Wukong Bicycle was the first company to go burst in China after losing 90% of its bicycles to theft. Now, there are only three major players left on the table – Ofo, HelloBike, and Mobike, all of which are supported by deep-pocket Chinese tech giants.
Two other lower ranked companies worth noting are Bluegogo and Didi’s own brand, Qingju (青桔). Didi revived a bankrupt Bluegogo at the start of this year and then began replacing Bluegogo’s bikes with its own brand. But Didi already invested in Ofo and even owned over a 25% stake in the company at one point.
2018 has been a rough year for China’s bike-sharing giants: Alibaba-backed Ofo pulled out of dozens of international cities as it fought with a severe cash crunch; Tencent-backed Mobike put the brakes on expansion after it was sold to neighborhood services provider Meituan Dianping. But one newcomer is pedaling against the wind.
In fact, bike-sharing isn’t a completely revolutionary invention. Many cities in the world already started providing public-use bicycles years before the emergence of these bike-sharing startups in mainland China and Hong Kong. But, one of the problems of the Chinese bike-sharing system is its dockless system, meaning users can pick up the bikes by simply swiping a QR code on their smartphone and park the bikes anywhere they want instead of returning to a station. While this feature may seem ideal in theory, it creates many problems in reality – For one, piles of abandoned and damaged bikes become a common sight in the streets of China. In Hong Kong, some of these colorful bikes have been dumped even in the river.
As China’s bicycle giants burn through billions of dollars to tout subsidized rides, they’ve gotten caught up in financial troubles. Ten months after Ofo raised USD866 million, the startup is reportedly mulling bankruptcy. Meanwhile, Mobike is downsizing its fleet to “avoid an oversupply,” a Meituan executive recently said.
Hellobike’s ambition doesn’t stop at two-wheelers. In September, it rebranded its Chinese name to HelloTransTech to signify an extension into other transportation means. Aside from bikes, the startup also offers shared electric bikes, ride-hailing and carpooling.
In terms of strategy, Hellobike differentiates itself from Ofo and Mobike by focusing its services on second and third-tier Chinese cities rather than major urban centers. It also went deposit-free before Mobike did, which may have spurred the orange giant to do the same.
The company headquartered in Shanghai is led by Han Mei, COO, and boasts of nearly 24 million orders per day with its services extended to over 300 cities in China. Hello Trans Tech is now focusing on expanding in second and third-tier cities and plans to push car-sharing and ride-hailing services.
It’s interesting to note that while both Ofo and Hellobike fall under the Alibaba camp, they began with different geographic targets. By May 2018, only 5% of Hellobike’s users were in China’s Tier 1 cities, while that ratio was over 30% for both Mobike and Ofo, a report by Trustdata shows.
The Shanghai-based company is one of the major start-ups competing in China’s growing bike-rental space and is a key rival to industry leaders Mobike and Ofo.
Bike Sharing Phenomenon in China
By 2018 more than 20 million shared bikes have been put onto the roads of cities all around China, as an example, Shanghai accounts with 1.5 million shared bikes. More than 77 startups compete every day for the bike-sharing market, but there are 2 competitors that stand out due to their size and their roles in the development of this phenomenon:
Mordor intelligence reports that the global bike-sharing market is expected to grow at a CAGR of 6.24% during the forecast period, 2018-2023, owing to the expanding bike sharing operators in the market as well as increasing demand towards E-bike among the customers.
One of the first pioneers in this project was Mobike, a startup financed by Tencent and Chinese investment firms. Mobike is a high-end branding segment with flashy orange wheels, incorporated satellite navigation. In the beginning, the production cost was around CNY6,000 but now there is a lighter version with a production cost between CNY200 and CNY500 per unit.
(series B round of funding was unannounced)
Ofo (小黄车) is a Chinese company that was one of the global market leaders in dockless bike sharing.. until recently. In 2018, Ofo made waves by jacking up their prices rather dramatically from USD0.50/30 minutes to USD0.50/15 minutes + USD0.50 just to unlock the bike. Their ride pass also increased from USD6.99 to USD8.99/month.
To be sure, despite the lucrative nature of the industry, both Ofo and Mobike have struggled in recent months as a result of vandalism, theft and poor maintenance of the bicycles. The Financial Times reported that Ofo has been burning about USD 25 million a month, while Mobike loses about USD 50 million monthly. Ride-hailing platform Didi Chuxing is reportedly in talks to buy Ofo, according to the FT.
(series B round of funding was unannounced).
Sustainability issues of free-floating bike-sharing
Initially, the new form of bike-sharing was seen as a trendy lifestyle, bringing the bicycle back to China’s cities and offering a convenient, easy and cheap way to travel. However, as the success of free-floating bike-sharing in China was accompanied by severe challenges.
• Public parking problem; The increasing number of bikes on the roads, lack of redistribution and improper parking by customers led to clogged public spaces and walkways, harming pedestrians in particular in areas around public transportation hubs and places of interest such as universities, nightlife hotspots, and shopping malls.
• Environmental problems; Due to low production costs, many companies produced more bicycles to address simple maintenance issues, as it would cost more to fix a bike than to replace it with a new one. Due to oversupply, lack of operational management and negative impacts on public spaces, many local governments took action and removed bikes from their cities and deposited them in landfills starting mid-2017. On December 5, 2017, Mobike was named the 2017 “UN Environment Champion of the Earth for Entrepreneurial Vision” for exploring market-driven solutions to air pollution and climate change. This award led not only to applause for Mobike’s achievements but also to criticism: the German dealer cooperative ZEG (Europe’s largest bicycle dealers cooperative) renounced its membership of the UN Global Compact with immediate effect, stressing the negative environmental consequences of the enormous quantities of aluminum required to produce huge amounts of cheap bikes which are not needed and pushed onto the market.
• Economic issues; Due to the ongoing price-war, free-floating bike-sharing operators were not able to develop profitable business models and thus relied on further massive venture capital injections. This led to the question if the bike-sharing schemes are just an economic bubble, which once exploded, will leave nothing but piles of broken bikes and customers without their deposits.
Reasons for the fast growth of free-floating bike-sharing
• Low service fee; Free-floating bike-sharing is offered for very low service fees, ranging from free rides to USD0.15 per hour (Ofo in 2017) to later USD3 per month (Mobike 2018). Even if the price is less important for the consideration of if and when to use a shared bike, the low fares make bike-sharing very attractive for young customers, such as students, who want to avoid public transport and cannot afford ride-hailing services for short or medium distances.
• High availability rate; Free-floating bike-sharing is convenient due to the fact that customers can leave the bikes at their destination without searching for a nearby docking station and can just as easily pick them up. This convenience is based on a large number of bikes on the market and thus high availability rates, but also on in-app registration, deposit payment, GPS based bike spotting and reservation.
• Secure; Bike theft is a reason for many people not to use their private bike for commuting from home to the next subway station or simply cycling around to explore the city. The idea of using a shared bike instead of a private one successfully addressed this issue and was one of the motivations for Dai Wei, co-founder, and CEO of Ofo to develop smart lock based free-floating bike-sharing.
• Health and environmental awareness; The cycling movement created a bike sharing lifestyle and contributed to the awareness for cycling as a healthy and environmentally friendly mode of transport. According to the Tencent Penguin Intelligence survey, 20.4% of customers in China are typically using shared bikes for fitness and exercise.
• Promising business models; Similar to car-sharing, the single bikes with their GPS and Internet-based smart locks are decentral assets. Once put on the street, they ideally operate autonomously. Even if there is a need for controlled redistribution and maintenance, the bikes are relatively independent revenue generators. Additionally, bike-sharing as low entry barriers, lifestyle- and location-based service offers the collection of user and ridership data, promising exploitation of additional revenue streams such as credit services or advertisement. This led to massive investments in free-floating bike-sharing and to a bike-sharing eldorado in China. After Mobike and Ofo raised their first large scale capital injections (Mobike USD100 million in Series C in September 30, 2016, and Ofo USD130 million in Series C in October 10, 2016), the investment craze started, and more and more providers entered the market, trying to get their share of the cake and to attract funding.
The future of free-floating bike-sharing in China is unknown, but after all, one thing is for sure: Cycling is a sustainable means of transportation and contributes significantly to healthy, low-carbon, pollution and noise emission-free urban mobility. With proper regulations in place to promote public transport, walking, and cycling thus (free-floating) bike-sharing is a central part of the vision of human scale and livable cities.