Opinion: Ofo faces a dilemma. Should it stay independent or surrender?

Photo credit: Ofo

This article is an adapted translation of the original story on Bufanbiz.

“To be or not to be,” uttered Hamlet as he considered two stark options: endure the hardships of living or commit suicide.

Ofo faces a similar dilemma. Media reports are beating the drum on Ofo’s financial health. There are allegations that the company has embezzled US$1.6 billion in user deposits. The bike-sharing company has rebutted those claims.

Now, the company seems to find itself at a crossroads. It has four tough options to consider.

Choice one: Seek further funding

The extension of financing will help Ofo maintain its status quo.

But how much money will it need to do that? The latest round of financing might offer some clues.

In March, Ofo announced that it had secured US$866 million in funding from a syndicate that included Alibaba and Ant Financial. Public data shows that Ofo’s value was estimated at US$15.1 million when it completed its series A round in April 2016. Its value shot up to US$1 billion almost a year later and reached US$3 billion by its series E round on July 2017.

Within a year, its value ballooned almost 200-fold. The momentum, however, puts enormous pressure on previous investors –  if the company’s value drops in the next round of financing.

The signs of financial strain have emerged. In March, Ofo secured US$200 million in loans from Alibaba after collateralizing its bikes. The move is risky because Ofo could lose its ownership of its key assets.

Ofo must show that there is still room for growth.

A leaked financial document showed that Ofo’s rival Mobike was losing US$75.5 million to US$90.6 million a month when it was acquired by Meituan Dianping. Mobike and Ofo have a similar market share, but Ofo has slightly more bikes which are also more prone to damage. A safe estimation is that the company will need at least US$90.6 million to stay afloat.

There are two possible reasons for its drastic move of pledging its bikes in exchange for cash: either the company does not have enough capital, or the old way of raising funds from VCs has hit a snag.

Ryan Holmes, CEO of social media management platform Hootsuite, once said that tech companies must have enough backup funds, especially in the later financing rounds. The bigger the company, the more important a backup fund is. The appropriate amount should be the total sum of employee salaries for a number of months.

Choice two: Fall under the wing of Alibaba or Didi Chuxing

Choice three: Acquisition by another company

Choice four: Become profitable