Ofo flew too close to the sun. Their dockless bikeshare model blew my mind when I first moved to China (I snuck a ridiculous quote into the China Times) and for a time Ofo was perhaps the hottest startup in the world. But by 2019, half the Ofo bikes I try to unlock in Beijing are broken, thousands have lined up outside Ofo HQ to demand refunds on their RMB 200 (about $29) deposits, and their CEO is now on a blacklist and barred from leaving the country.

Why was the rise so precipitous? A sexy model and investor FOMO. The model of spreading bikes around cities and allowing users to unlock the bikes with their phones for an upfront deposit and 25 cents per ride at first was incredibly attractive. Financial analyses of the firm “raised the fighting spirits of investors” who worried that if they weren’t able to wriggle their way into Ofo’s cap table, “everyone would know that they weren’t top-tier funds.”

On the WeChat public account GQ Report, Wei Shijie examines the history of the two-wheeled Icarus, concluding that what really doomed the company was its attempt to play Tencent and Alibaba off against each other

Ofo’s failure: doom and desire

Wei Shijie, GQ Report, June 17, 2019

Wei writes that enormous funding rounds (at its height, Ofo raised an Alibaba-backed $866 million round on a $3 billion valuation) combined with a fierce battle for market share with competitor Mobike led, unsurprisingly, to reckless spending.

“Just think about winning the war—don’t worry about money” was the key internal slogan echoing in employees’ ears. Describing that time, one employee said, “It’s like when a poor person wins a million dollars in a lottery, but the requirement is that you need to spend half of it to keep the other half. You don’t know how to spend the cash, so you just blow it.”

So the firm spent tens of millions on Facebook ads alone to spark overseas growth, offered heated toilets and “Google-level” food to attract top talent, and spent extra for rush orders on bikes.

What was the turning point? According to Wei (seconded by a Pony Ma WeChat Moments post), it came down to veto rights.

Experienced entrepreneurs know: Under normal circumstances, do not accept investments from two (or more) of Tencent, Alibaba, or Baidu at the same time. But Ofo CEO Dai Wei allowed the Tencent Department’s Didi and Alibaba’s Ant Financial Service to sit on Ofo’s board of directors. Today, behind every business story, there’s also a capital investment story. It is dangerous to violate common sense.

Balancing investments from internet giants, Wei writes, is a dangerous game in the Chinese startup landscape. While Didi CEO Cheng Wei was able to keep both Tencent and Alibaba somewhat happy, Wang Xing’s acceptance of Tencent money provoked Alibaba to pour billions into Meituan direct competitor Ele.me. In this case, Ofo’s decision to open a WeChat mini-app (which does not accept Alipay) convinced Alibaba that Ofo could no longer be trusted. Ali convinced an early shareholder to transfer his board veto to them, thus enabling them to block potential buyout offers by Didi. Said one investor, “As soon as Ali joined the board, Ofo had no more moves to make.”

Xu Xiaoping, the founder of Zhenfund, said, “Dai was president of the Peking University Student Union [seen as a stepping stone to political success]. Secondly, he went to Guizhou to teach after graduation. This means he’s an idealist. If I don’t invest in this sort of founder, who do I invest in?”

These ideals also led him to fight it out to the last breath. Dai told employees who pushed him to take a buyout that “experience is worth more than money.”

So, Wei writes, Dai went to war. In May 2018, he called a company meeting to release a plan called “Victory Day.”

In front of a hundred colleagues, he recalled the movie “The Darkest Hour,” comparing Ofo to England wavering at the start of World War II. He used Churchill’s example to exhort Ofo to never give up, defend its freedom, and fight until the last RMB.

After taking this stand, there were some small victories. Ofo started selling full-screen video ads that users would have to endure before unlocking their bikes, bringing in over $15 million.

But, Wei writes, the writing was on the wall. With Alibaba vetoing any further cash investment, and Didi having decided to build its own bike-share empire by buying out competitor Bluegogo, Ofo wasn’t able to keep up its service. (In Beijing, half the Ofo bikes this translator tried to unlock were broken.) At some point, customers lost faith that their deposits would be refunded, and a “bank run” of sorts began. Right now, there’s a line of over 10 million users waiting to get their RMB 200 back.

Bicycle graveyards began to proliferate across China. One photographer quoted was most struck by the bikes “weeping.” It took him a moment to realize that this was the sound of the electronic lock failing. “If you only hear this sound once or twice, it sounds like a cicada. But when its one after another, it hits your ears like a tidal wave. These bikes have been treated so roughly, they’re trying to tell us their story with this scream.”

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Jordan Schneider

Jordan Schneider is a freelancer based in Beijing and the host of the ChinaEconTalk podcast.

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