Bike-Share Pioneer Ofo Flirted With Bankruptcy as Cash Dried Up

(Bloomberg) -- Ofo Inc., a pioneer of China's bike-sharing boom, considered throwing in the towel and filing for bankruptcy in what would have been the country's biggest startup failure in years.

Chief Executive Officer Dai Wei laid out the company's challenges in an impassioned letter to employees Wednesday, from customers seeking deposit refunds to suppliers demanding unpaid bills. While the 28-year-old weighed bankruptcy after mis-reading the market environment, he suggested such a move was no longer an option.

Dai's emotional missive caps a horrendous year for a startup that epitomized the can-do nature of China's technology scene and raised more than $2 billion in funding from investors. Backed by some of the country's biggest tech giants from Alibaba Group Holding Ltd. to Didi Chuxing, Ofo helped spur a trend of dockless bike-sharing from Beijing to Paris. The four-year-old company, which was said to seek a $3 billion valuation at its peak, at one point handled more than 25 million bike rides a day and had planned to blanket global capitals from London to Moscow.

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But it also came to symbolize the industry's excesses. Along with arch-rival Mobike, Ofo's canary-yellow bicycles piled up in junkyards across China as dozens of competitors jumped into the fray, fomenting a glut and pricing war that ultimately killed off all but a handful of players.

“In the past half-year, thanks to cash flow and media pressures, we've expended effort without reward. It's especially so after the company failed to raise new funding,” Dai said in a memo shared by a company representative. “I considered, countless times, cutting off all our operational capital to repay customers and suppliers, even breaking up the company and filing for bankruptcy. Then no one will have to bear this enormous burden.”

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That would have been a remarkable about-face for a company that clawed its way up from an experimental project for college students to one of China's most visible startups.

Dai, a Peking University PhD dropout, founded Ofo in 2014 with four other students and built their cycling project into a company that operated tens of thousands of bikes. Shared bicycles rapidly gained favor among students and commuters tired of inching their way through jam-packed traffic.

Dai didn't elaborate on how Ofo mis-judged the market, but the company has said it intends to withdraw from several cities abroad. Heavy discounts and the need to saturate large cities with available bikes took a toll: at the height of the bike-sharing boom, local manufacturer Shanghai Phoenix disclosed an agreement to supply Ofo with at least 5 million bikes.

That same company said in September it was suing Ofo for 68 million yuan in unpaid bills. Long before that, observers had pointed out flaws in the industry model apart from unsustainable discounts. The cycles tend to be easy targets for thieves and vandals, and require massive manpower to maintain and re-distribute.

For now, Ofo fully intends to soldier on. In his brief memo, Dai exhorted his workers to tackle the company's issues head-on, while conceding the immense pressure his startup is under.

“Every time I think of giving up, I'll see Ofo customers streaming by on the road, on the way to work or ferrying our little yellow bikes,” he wrote. “That's when I tell myself, and I want to tell every Ofo person, where there's life there's hope.”

To read about the buyout of Ofo's biggest rival, click here

To contact Bloomberg News staff for this story: Gao Yuan in Beijing at ygao199@bloomberg.net

To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Edwin Chan

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With assistance from Bloomberg