# ofo (2014 – 2020)

- URL: https://girisimcikafasi.com/en/startup-graveyard/ofo/
- Sector: Mobility and transport
- Country: China
- Total funding: $2.1 billion
- Cause of closure: Ran out of cash

## What did it do?

ofo was a Beijing-based dockless bike-sharing company. Users found and unlocked a nearby bike with a smartphone app and, after their ride, could leave it anywhere and lock it. The company charged by the hour and used yellow bikes that reported their location via satellite.

## Why did it shut down?

A model built on fleet size created permanently high operating costs and a constant need for fresh capital. The chance to merge with Mobike slipped away and acquisition talks with Didi came to nothing; after Mobike received a $2.7 billion investment from Meituan-Dianping, ofo began shrinking at home and abroad. Operations in many countries closed, 70 per cent of US staff were laid off and its operating licence in Singapore was suspended. By 2020, facing a debt burden too large to repay, the company was no longer renting out bikes.

## The story

ofo, named after three letters that look like a person riding a bicycle when written side by side, was founded in 2014 by five members of the Peking University cycling club. The first idea was cycling tourism; the team soon turned to dockless bike sharing. The service launched in Beijing in June 2015 and, with investment from a university graduate, reached 20,000 users and 2,000 bikes by October.

After that, the capital race among China's tech giants drove ofo's growth at an extraordinary pace. In September 2016 came $130 million from Xiaomi and Didi Chuxing; in February 2017, $450 million at a $1 billion valuation in a round led by Didi and Digital Sky Technologies; in July 2017, $700 million led by Alibaba, Hony Capital and CITIC PE; and in March 2018, $866 million, again led by Alibaba. In 2017 the company reached more than 10 million bikes in 250 cities across 20 countries and over 62.7 million monthly active users; its valuation climbed as high as $2 billion. Singapore, Cambridge, Seattle and Sydney were launched in quick succession.

But the model meant permanently high operating costs and an endless need for capital. The chance to merge with Mobike slipped away, and acquisition talks with Didi came to nothing. When Mobike received a $2.7 billion investment from Meituan-Dianping, ofo began shrinking to survive. Amid the cash crunch, where 5 million bikes a year had been expected, only 80,000 could be ordered. Operations in Australia, Germany, India, Israel, Spain and Thailand closed entirely; 70 per cent of US staff were laid off. In August 2018, while Didi and Ant Financial were reportedly weighing a joint acquisition, founder Dai Wei was quoted as saying he would refuse even a $10 billion offer.

In December 2018 the company was reported to have considered filing for bankruptcy several times because of cash-flow problems. In January 2019 the international unit was disbanded; former employees said operations in Singapore had “effectively stopped” because no staff were left, and the country's Land Transport Authority suspended ofo's licence. By 2020, facing a debt burden too large to repay, ofo was no longer renting out bikes.

The lesson of ofo is that market share bought with capital is not permanent. In a model built on physical assets, every new city means a new maintenance and collection burden; expansion before the unit economics work catches the company at its most vulnerable moment, when the capital tap is turned off.

## Lessons

- In sharing models built on physical assets, measure growth not by the number of bikes or vehicles but by daily usage and maintenance cost per asset.
- Do not turn down acquisition or merger offers that arrive while capital is plentiful on the assumption that the next round will always come.
- Before entering a new country, set aside the team and budget to meet local regulatory requirements; losing a licence can close a market overnight.

## Sources

- [Ofo (company)](https://en.wikipedia.org/wiki/Ofo_(company))
- [ofo, Chinese bike-sharing firm, raises $450 million in latest funding round](https://www.reuters.com/article/us-china-ofo-fundraising/ofo-chinese-bike-sharing-firm-raises-450-million-in-latest-funding-round-idUSKBN1683C9)
- [Chinese bike-sharing firm Ofo raises $866 million led by Alibaba](https://www.cnbc.com/2018/03/13/chinese-bike-sharing-firm-ofo-raises-866-million-led-by-alibaba.html)
- [Chinese Bike-Share Startup Ofo Lays Off Majority Of US Staff As It Scales Back Global Ambitions](https://www.forbes.com/sites/bizcarson/2018/07/18/ofo-bikes-us/)