Time Is Running Out for Unprofitable Chinese Startups

A bike-sharing crash in China shows the folly of taking such startups too seriously now that venture capital is drying up. Ofo never had a sustainable business model. Chinese bike-sharing companies rent out bicycles for just a few U.S. cents an hour, which is far from covering their costs. Still, the sector dotted the streets of every major Chinese city with millions of bikes, supported by billions of dollars of venture capital. Ofo got $2.2 billion of funding, including $866 million as recently as March in an Alibaba-led funding round, according to data provider Crunchbase.

Mobike, the other big bike-sharing startup in China, may struggle to benefit from Ofo’s problems in a hypercompetitive market. Meituan Dianping bought Mobike for more than $2 billion in April to complement its core food-delivery business, which like bike-sharing is unprofitable despite strong growth. Meituan has lost a third of its value since its Hong Kong initial public offering in September.

Tech giants Alibaba and Tencent, which have sunk billionsinto startups in the past few years and could face write-downs, could become collateral damage. The enchanted forest of unicorns looks set to be among the victims of China’s worsening economy.

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