New China’s startup boom pays off

A crazy idea led this for­mer jour­nal­ist to a US$3bil buy­out

The Star Malaysia - StarBiz - - Star Sme biz -

IT SEEMED like a nutty idea at the time – and it still does.

Three years ago, Hu Wei­wei and her co-founders de­cided to start a busi­ness let­ting peo­ple share bi­cy­cles for pen­nies per ride. Peo­ple could hop on for a quick ride to the sub­way or su­per­mar­ket, then leave the bike right out front with­out the has­sle of find­ing a park­ing rack.

In a shocker for most of the rest of the world, the Chi­nese busi­ness boomed and early this month, the for­mer jour­nal­ist and her co­horts agreed to sell Mo­bike in a deal that val­ues the startup at US$3.4bil. Food de­liv­ery gi­ant Meituan Dian­ping is ac­quir­ing the com­pany. The founders and in­vestors pocket more than US$1bil in cash and Hu – who’s turn­ing 36 this year – and her team get to keep run­ning the busi­ness.

It’s a story of the New China, where tech par­venus amass riches at mind-bog­gling speed. A gen­er­a­tion of younger en­trepreneurs is cap­i­tal­is­ing on the mass adop­tion of smart­phones, faster in­ter­net speeds, easy mo­bile pay­ments and abun­dant ven­ture cap­i­tal. Backed by gi­ants Alibaba Group Hold­ing Ltd and Ten­cent Hold­ings Ltd, Chi­nese star­tups have been able to burn bil­lions in cash to build busi­ness mod­els that often ul­ti­mately ben­e­fit the two be­he­moths.

“In world in­ter­net his­tory, you have never seen a phe­nom­e­non like this: so much money raised, so quickly with such young en­trepreneurs,” said Ben Har­burg, a man­ag­ing part­ner at Magic Stone Al­ter­na­tive In­vest­ment Ltd, which in­vested in both Meituan and Mo­bike.

China Re­nais­sance acted as the ad­viser for Mo­bike, most re­cently val­ued at US$3bil ac­cord­ing to re­searcher CB In­sights. The deal val­ues the bike-shar­ing firm’s eq­uity at about US$2.7bil, and Meituan will as­sume roughly US$700mil in debt, one of the peo­ple said.

Mo­bike’s un­likely tale be­gan in 2015 when Hu’s team worked out of an of­fice next to their build­ing’s com­mu­nal toi­let. Along with co-founders such as Davis Wang, she hatched the idea of pool­ing bi­cy­cles – long as­so­ci­ated with Com­mu­nist China’s in­dus­trial boom – to help har­ried ur­ban­ites glide through wors­en­ing con­ges­tion. Around that time, a bunch of col­lege kids led by Dai Wei were ex­per­i­ment­ing on-cam­pus with the same idea, even­tu­ally cre­at­ing Ofo – now Mo­bike’s big­gest ri­val.

It wasn’t easy. In China, the in­ter­net busi­ness is trial by fire. At least three dozen com­pa­nies jumped into the field and moun­tains of bi­cy­cles piled up in Beijing and Shanghai. Mu­nic­i­pal­i­ties strug­gled to keep streets and side­walks pass­able – lo­cal gov­ern­ments in the

— AFP

US and Eu­rope balked as the China star­tups tried their free-wheel­ing ap­proach abroad.

More than 34 smaller com­peti­tors have shut due to high op­er­at­ing costs and a lack of fund­ing, ac­cord­ing to the China Con­sumer As­so­ci­a­tion. Now, Mo­bike and Ofo ac­count for about 90% of the mar­ket, Coun­ter­point Re­search es­ti­mates.

Mo­bike lured in­vestors by cul­ti­vat­ing a pre­mium gloss. It cre­ated bikes with snazzy or­ange wheels that cost as much as 3,000 yuan (US$476) and equipped them with satel­lite po­si­tion­ing. Its pric­ing was dou­ble that of Ofo’s, but that even­tu­ally came down and was often free when the two waged sub­sidy wars. But a steady stream of fund­ing from some of the big­gest names in tech in­vest­ment – in­clud­ing Alibaba, Ten­cent and Se­quoia – helped them flood the streets with bikes. It also let them re­plen­ish the bikes con­fis­cated on a daily ba­sis by city au­thor­i­ties try­ing to clear their side­walks of the re­sul­tant clut­ter.

“Mo­bike’s case shows how China’s full of op­por­tu­ni­ties for small star­tups to grow quickly in very short pe­riod of time,” said Teng Bing­sheng, a pro­fes­sor at Che­ung Kong Grad­u­ate School of Busi­ness.

“Many of the Chi­nese tech star­tups will even­tu­ally take sides be­tween Alibaba and Ten­cent be­cause the pair sim­ply cov­ered a wide area in terms of in­ter­net ser­vices.”

In the US, it takes, on av­er­age, seven years for a startup to achieve uni­corn sta­tus or more than US$1bil in val­u­a­tion, ac­cord­ing to Bos­ton Con­sult­ing Group. In China, that fig­ure is four years.

The deal also high­lights how al­le­giances can shift in the blink of an eye. In the bike-shar­ing space, three camps re­main. There’s Meituan and Mo­bike, backed by Ten­cent, the so­cial me­dia go­liath us­ing both to prop up its mo­bile pay­ments busi­ness. In an­other camp is Alibaba, which has drafted Ofo and the third largest player Hel­lobike.

“It wasn’t just that they were in the mid­dle of a war be­tween the Alibaba and Ten­cent in­ter­net gi­ants who were fi­nanc­ing them and the ven­ture funds,” Har­burg said.

“They were also, of all the tech­nol­ogy com­pa­nies in the world, the most un­der the pub­lic spot­light be­cause they’re one of the few vis­ual man­i­fes­ta­tions of this in­ter­net wave that is hit­ting China.”

Then there’s Didi Chux­ing, the lat­est to wade into the fray. Didi was once Ofo’s strong­est backer. But that re­la­tion­ship soured in past months as Didi sought more con­trol. The com­pany then at­tempted to in­vest in Mo­bike but didn’t fol­low through, ac­cord­ing to peo­ple fa­mil­iar with the mat­ter. Ten­cent, a backer also of Didi’s, gave its bless­ing to Meituan, one of the peo­ple said.

Meituan it­self is tread­ing a fine line with its most im­por­tant backer. The com­pany di­rects some 60% of its pay­ments traf­fic to Ten­cent, but is de­vel­op­ing its own trans­ac­tions sys­tem.

As Meituan evolves into a su­per­app that of­fers ev­ery­thing from food de­liv­ery to ride hail­ing, it may no longer be con­tent with just be­ing Ten­cent’s proxy. It’s al­ready said to be plan­ning an ini­tial pub­lic of­fer­ing this year, seek­ing a val­u­a­tion of at least US$60bil.

“These sec­ond-tier com­pa­nies might be used as prox­ies for Alibaba and Ten­cent for now, but within their own camps, they also are play­ing a game of chess and try­ing to build big­ger ecosys­tems,” said Zhou Xin, pres­i­dent of Bei­jing­based in­ter­net con­sul­tancy Jk­in­vest Big­data.

Mo­bike’s big pay-day aside, bike-shar­ing re­mains a fraught arena. Both Ofo and Mo­bike have raised bil­lions via some eight rounds of fund­ing, ac­cord­ing to Coun­ter­point. Yet they’re un­prof­itable, said Zhang Meng­meng, an an­a­lyst at Coun­ter­point. And the bike wars con­tinue.

“The fees charged are not enough to cover the costs of run­ning the op­er­a­tion,” Zhang said. “It seems un­likely that there will be any clear ways of mon­e­ti­za­tion from big data in the near fu­ture.”

Hu, on her per­sonal WeChat ac­count, turned re­flec­tive as the deal was com­pleted. She said Mo­bike’s mis­sion is con­sis­tent with Meituan’s vi­sion.

“From my per­spec­tive, it’s a new be­gin­ning,” she wrote, in­clud­ing a link to the Nine Inch Nails song “The Be­gin­ning of the End”. — Bloomberg

A cy­cle in the park: A file photo of Mo­bike’s bi­cy­cles with snazzy or­ange wheels. Food de­liv­ery gi­ant Meituan has re­cently agreed to ac­quire the startup.

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