Chinese tech media is aflutter this morning after news last night that Kala, an O2O bike-rental company, went out of business after only 19 days of operation. In those 19 days, the company, in cooperation with the Putian government (a Tier 4 city in Fujian province), were only able to recover 157 of the 667 bikes they had put around the city for use. Now, they are saying that, due to an agreement with their investor, they are not able to refund any outstanding deposits.

Founded in October 2016, Kala (卡拉单车) planned to operate in Tier 3 and Tier 4 cities (in Chinese) to avoid head-on competition with bike-rental leaders Mobike and Ofo. However, it took them 2 months to find investment, after being turned down by 30 different investors.

Once they were able to get funding, they planned to expand with 5000 bikes to other Tier 3 and Tier 4 cities, but after the startling losses of their only real asset, their investor (not disclosed) invoked a clause in their value adjustment mechanism (VAM) agreement. This allowed them to take all desposits as recompense for an initial over-valuation of the company.

According to the company, they have returned as many deposits as they can, but have already ran out of money from their initial bank loan.

The news that an investor was able to walk away with all the deposits has raised many eyebrows (in Chinese) around the country. Both Mobike and Ofo have stated many times that all the deposits are kept in separate accounts from their operating budget; users can conceivably get their deposit back whenever they choose.

This outstanding failure, however, does not seem to have dampened investors enthusiam for O2O bike-rental. Mobike announced yesterday that have received post-series D funding from Temasek, a Singapore-based investment company. This puts the total amount of money Mobike has raised this year over US$ 300 million, according to the company.

John Artman

John Artman is the Editor in Chief for TechNode, the leading English information source for news and insight into China’s tech and startups, and co-host of the China Tech Talk podcast, a regular discussion...