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CNBC
Tuesday, Apr 18, 2017

Business

Chinese bike-sharing start-up says it's now worth more than $2 billion

CNBC | Sophia Yan | Tuesday, Apr 18, 2017

Chinese bike-sharing startup Ofo now says it is worth more than $2 billion (S$2.8 billion).

CEO Dai Wei, a 26-year-old entrepreneur who named his firm Ofo as the letters look like a bike, revealed that figure in a conversation with CNBC.

It's about double the last reports of the company's value - which came out less than two months ago.

Such a valuation isn't too shabby for a company that started about two years ago with its founders pooling private savings of 150,000 yuan (S$30,433) to kick things off.

Dai, for his part, is unfussed about the value of his Beijing-based firm.

He even seems unaware of how astonishing it is to reach that figure for a firm that's so young.

What's important to him, he said, is what Ofo can do for consumers.

"When you set up a company, you have to solve the problem, you provide [a] service for the users," Dai told CNBC.

"We have to figure out … what is the main problem we have to solve - that is more important than valuation."

The sky's the limit for Ofo: Over 3 million of the company's bright yellow bikes can be found in more than 50 Chinese cities, and their wheels have already rolled abroad to London and Singapore. By year's end, Ofo is targeting expansion to 20 countries, including Japan, Spain, France, Germany and the Philippines, Dai said.

"We think 'bicycle' is the global language," Dai said, pointing out that most of the world's population can ride a bike.

Ofo's dizzying rise is a testament to the giant bike-sharing battle that has suddenly unfurled through China's busy urban streets.

Cities are now dotted with a rainbow of bikes, each colour representing a different company.

But as more firms crop up to help residents manage the sprawl and the traffic, the big question remains: When, and will, they ever be profitable?

And how are they going to do that with bike rides that cost a couple of cents per whirl?

"The business model is a bit puzzling … It's very capital intensive, and they've got to maintain the bicycles," said Paul Gillis, a professor and co-director at Peking University's Guanghua School of Management.

"With these low fares, I can't see how they could possibly be earning a positive cash flow at this point."

Another risk is a run on firms like Ofo, if gobs of consumers lose confidence in the companies and seek refunds on the deposits they made to ride the bikes, he said.

Still, big investors continue to pour money into the industry.

Ofo has huge backers, including DST Global, a firm that invested in Facebook and Twitter, and Chinese taxi-hailing app Didi Chuxing, which gobbled up Uber's China division.

It's easy to see why consumers have taken to the Chinese bike-sharing model - it's convenient because, unlike other programs, users can leave them anywhere.

Plus, it's a green way to get around giant Chinese city blocks - sometimes already lined with bike lanes - and riders don't have to worry about bike maintenance or theft.

Ofo's success has even attracted the attentions of Apple's Tim Cook.

The tech CEO visited the company's offices on a recent visit to Beijing, after the bike app became the most popular on Apple's China app store, boasting over half a million downloads a day.

But the quick uptake has given way to yet another problem: The bikes are now polluting the public square, with mangled two-wheelers piled high on some sidewalks.

None of these challenges appeared to bother Dai, who said he's convinced the bike-sharing industry and the government can co-operate to solve the issue.

Ofo, like its competitors, is already working to move bikes to areas with higher demand - sometimes by carting them to a new location, or using monetary incentives to get users to ride or park bikes in specific spots.

And if Dai has his way over the next five years, city residents won't need to buy their own bikes for transport anymore.

The dream?

To see "every city in this world, in every corner, you can find [an] Ofo bike to help you get to the nearest restaurant, nearest supermarket, subway station - or just to ride around in your city," he said.

That is, after all, the company's motto, emblazoned on its young, buzzy, yellow-accented offices: "Anytime, anywhere, a bike to ride."

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