Ofo and the dangers of investment capital

Photo credit: walkingsky / 123RF

The following is an adapted translation from this article published by Lueda Cankao on Sina Tech. This story contains strong claims and conclusions drawn at least partly on the basis of hearsay and rumor, but Tech in Asia has translated it because it’s a meaningful piece of the discussion happening in China right now about the bike-sharing industry and startup investment in general.

Ofo’s struggles demonstrate the tragedy of China’s startup ecosystem – if you can make it to the end, you end up getting hurt by the strong grip of your own investors.

After Ofo shareholder Allen Zhu reportedly sold his shares to Alibaba, Ofo’s struggles with investor Didi are well known. Didi is said to have wanted to acquire Ofo at a low price, and wasn’t shy about using the power of its seats on Ofo’s board to accomplish that.

There’s really nowhere else where investors have the same “invasive” mindset that China’s venture capitalists do. And because so many Chinese startup enterprises lack a clear profit model, they hand “daggers” like single-vote veto power over to their investors with regularity.

Short on cash

Sina Tech received reports that Ofo has paid its employees’ August wages, but some operational partners like offline operations staff apparently haven’t yet gotten their monthly payments. It seems clear that Ofo really is short on cash.

There are two recent rumors floating around about Ofo’s source of funds: one is that it’s about to complete another series E round; the other that it’s taking a loan from Ant Financial. But our sources at Ofo suggest that neither of these has hit the bank yet, and it could be that neither deal will materialize. Ofo has reportedly raised a new round with Ant Financial and Didi investing, but officially, all the company has said is “no comment.”

Looking from the outside, there are lots of unanswered questions.

For example, the week after that purported funding, many media wrote that Ofo had taken a roughly RMB 60 million loan from Alibaba. But Alibaba quickly denied those reports. On September 12th, news of a supplier filing suit against Ofo came to light, over “contract disputes” related to logistics. And bike manufacturer Phoenix also sued Ofo for unpaid bills in late August, asking for over US$10 million in damages. Plus, back in July, another service provider that works with Ofo told the National Business Daily that it would be suspending work with Ofo due to nonpayment.

It’s clear there are some problems at Ofo, and the lack of money would explain why Ofo looks to be considering taking money it shouldn’t take and giving away power it shouldn’t give.

Photo credit: Jake To / Unsplash

Strangled by capital

Ofo founder Dai Wei is a very capable person, but he has been faced with a never-ending war. And some of those battles have come with investors; first with Allen Zhu, and then with Didi.

Zhu used the carrot and the stick with Ofo, but his ultimate goal was to get out. That was consistently the case. In June 2017, as an Ofo investor, Zhu showed rare restraint during the Ofo-Mobike battles, considering that he was also an investor in Mobike, but he also occasionally flexed his muscles, saying things like “The fight between Ofo and Mobile will be over within 90 days.”

The power of capital and the one-vote veto

Didi needs Ofo