Writer: Yang Lin, Yang Xuan
The frequency at which the bike-sharing sector is reshuffled has far exceeded expectations. Bluegogo’s bike, originally developed by SpeedX, offers arguably the best-acclaimed riding experience among its kind. Yet the company is now on the verge of running out of capital and going bankrupt, Kr-Asia recently learned.
According to a report by BiaNews, Bluegogo has dismissed its staff and will not be able to cover the back pay until February 10, 2018. Employees said that Bluegogo dismissed most of its workforce yesterday but a small proportion of its technological personnel may be transferred to other companies. Meanwhile, it’s said that the company’s HR director was already selling office furniture on WeChat yesterday. “Simple but stylish, almost new office furniture for sale.”
“Bluegogo has practically disbanded its marketing and operation teams,” a source familiar with the matter told Kr-Asia. He was not optimistic about the company’s future.
The past two months has been tough for Li Gang, the CEO and founder of Bluegogo. As of this moment, he is still looking for a buyer for his company. Kr-Asia learned from an insider that the companies Bluegogo has approached include, among others, Ofo, Mobike, Wanda Group, Youon and even Meituan.
For Li, it was a period during which hope repeatedly gave way to dismay. Reports on the company in the past two months have revolved around keywords like cash flow problems, failure to refund deposits, suspension of production and even bankruptcy and acquisition.
“I’m doing my best to protect the interests of our users, suppliers and investors,” the founder told Kr-Asia last week in response to the already widely circulated negative coverage of his company.
60 uneasy days
Li has been seeking financing or – if that’s not possible – a buyer for his company since September.
Kr-Asia learned that both Ofo and Mobike had considered acquiring Bluegogo. According to an insider, both companies have had contact with Bluegogo. “One even sent a due diligence team to the company” towards the end of this past October.
“Bikes themselves are not what Ofo or Mobike is eyeing as neither is in shortage of bikes,” the above mentioned insider pointed out. “If one of them eventually decides to take over Bluegogo, it will be the latter’s supply chain and technological team that it’s interested in.”
A source close to Ofo’s management Kr-Asia talked to thought that the chance of an acquisition by Ofo is small. Mobike declined to comment on the issue.
Youon, another bike-sharing service, is among the potential buyers too.
It was also the closest to reaching an acquisition deal with Bluegogo. According to an earlier report by BiaNews, Youon had injected 10 million yuan into Bluegogo to ease the latter’s financial strain. But both companies denied the acquisition later.
“(There was injection of capital.) We borrowed some money from our old shareholders,” Li admitted to Kr-Asia. The money was said to be used to cover pay back and refund deposits.
Kr-Asia exclusively learned that talks between Bluegogo and Youon had begun since the middle of the year. The two sides discussed financing at first, but the focus has been shifted to merger and acquisition since September.
The shift is not hard to understand. A few hundred million yuan in financing may allow Bluegogo to double its business size, but is not enough to bring it on a par with Ofo or Mobike. “A finance-based merger between two high-quality assets not only saves time, but also makes more sense,” a bike-sharing analyst explained.
However, the result was not what Bluegogo hoped for. At the end of October, Youon announced to merge its dockless bike-sharing subsidiary Youon Low-carbon Technology with Hellobike, a Shanghai-based bike-sharing startup. Meanwhile, Yang Lei, CEO of Hellobike, said in an open letter to employees that he would take office as the CEO of the merged company and oversee the new firm’s operations.
Bluegogo still has a ray of hope, as there are precedents of a merger among three companies in the same field. Yet things have deviated far from what Li originally planned. At this point, even if Bluegogo is eventually acquired by Youon, with Hellobike having moved ahead of it, the room for growth for Bluegogo will be limited.
It seems that things are heading in a direction that doesn’t look good for Bluegogo.
According to Chengdu Economic Daily and a number of other media outlets, Bluegogo’s coworking spaces in Chengdu and Guangzhou have gone idle for days and of the three maintenance centers Bluegogo operates in Chengdu, two have been shut down and the other has stopped operating, with numerous bike parts and components left at the site.
It’s not just Guangzhou and Chengdu, an insider told Kr-Asia. “Bluegogo will cease its service in multiple cities across the country,” and the company still owes nearly 10 million yuan to manufacturers, the insider added.
To make matters worse, pressing issues such as deposit refund, slowdown in new bike supply, unpaid wages and debt to suppliers have diminished Bluegogo’s negotiating power.
While the influx of capital allowed the bike-sharing business to grow into a huge market in a relatively short period of time, for companies that are falling out of investors’ favor, what awaits them is a disastrous fall.
Two fatal mistakes
Bluegogo was still full of hope for the future as recently as this March. As a senior executive told Kr-Asia in a previous interview, raising funds was easy at the time. “Almost all institutions that did not invest in Ofo or Mobike have approached Bluegogo.” The company was quite confident about its products, which it saw as its core competence. “I’m confident that Bluegogo will eventually edge into the top two and compete with the other player for the leading position in the bike-sharing space.”
Nevertheless, just six months later, the competitive landscape has seen a dramatic change. The market turned out to be so “small” that there is only room for the top two. Other companies, as they dragged on, may eventually find themselves with no way out, as Bluegogo did. Bluegogo failed to raise funds as expected. In fact, it’s been quite some time since its last financing round, which took place this January.
The company turned down a number of investment offers during its prime days, something Li described as the most disastrous mistake his company made since its inception.
“We had many good opportunities back in March and April. There were both investment and acquisition offers, but we made the wrong call on the overall market conditions and overestimated ourselves. It was pretty silly (in retrospect),” lamented Li. “That mistake dealt a blow to our company and made the path ahead narrower.”
The real top two — Mobike and Ofo — never hesitated when investment offers came. Over the past four months, the two companies have respectively landed $600 million and $700 million in series E financing, equipping themselves with enough “weapons” to fight the ensuing battle and also leaving other players like Bluegogo far behind.
The other mistake was made around this May. It’s learned by Kr-Asia that Bluegogo was once in frequent contact with Wanda Group and rumors had circulated inside the company that it would receive $100 million in financing from the latter this June. “In fact, Bluegogo already sent the necessary due diligence documents to Wanda Group in May. We thought it was a sure deal,” an insider told Kr-Asia.
Bluegogo’s bike was even used in an Ironman triathlon race Wanda Group organized at the height of their interaction.
Meituan was once close to becoming an investor in Bluegogo too. According to a source familiar with the matter, the two companies have been in talks since this May and are mulling a deal worth over $100 million. Meituan declined to comment when Kr-Asia contacted its PR team about the speculated deal.
“Bluegogo is expecting one or two sums of funds from the government,” another source revealed. It’s unclear why none of these has worked out so far. After a failed marketing campaign in June, no news has been heard about any of these projected investments.
As more money flows into the bike-sharing market and companies’ valuations soar, a subtle change is taking place in the mindset of later investors.
On the other side, the wrestle between Ofo and Mobike is still on with neither side managing a notch above the other. “Many companies only get to series E financing round before going public. It seems unlikely that Ofo and Mobike will go public soon, as they haven’t even figured out an effective profit model themselves. It’s just that they have managed to bag in all the capital they could from VCs in a very short period. The investors, after coming to their senses, will become more reluctant to invest in other smaller players,” says a professional in bike-sharing.
The received rule of the Internet industry only allows survival of top three players or only one player. Zhu Xiaohu, one of the early investors in Ofo, has been calling out recently for the merger of the top two players, signaling that it is the only way for them to earn a profit.
The other small players should huddle together to win the support of Chinese investors (which Li has also envisioned before), or they could only wait and die.
Bluegogo’s another mistake is that it misplaced its focus on riding experience, while the other big players were busy arming themselves for large scale expansion–both Ofo and Mobike have stored up many bike manufacturers.
Actually, the small players in bike-sharing have started to drift down since June. Kr-Asia had an exclusive coverage about this titled The manufacturing of sharing bikes has hit speed bumps. in July. According to the report, the orders for sharing bikes received by manufacturers were dropping dramatically, except for those regular suppliers for Ofo and Mobike. “All the sharing bike manufacturers have barely received any orders except for those regular suppliers for Ofo and Mobike. The manufacturers are now waiting for the companies to pay their bills so that they can find another way out,” says Zhou Chu, Founder of Qianxing Riding which handles procurement of sharing bikes as an agent, in an interview with Kr-Asia at the end of August. “The sharing bike manufacturers have been suffering in recent months. Their situation will only get worse if they can’t get their money back.”
While Bluegogo is mired in its own plight, Ofo and Mobike are charging full speed ahead. Some time ago, Li was thrown into great despair when he learnt that Ofo had been dumping bikes on the street unremittingly. “I was hit hard and had been in great despair during that period,” says Li.
Bluegogo’s advantages on riding experience and efficiency were soon drowned at a stage when scale and capital were valued more.
“It’s too early to admit defeat.”
Life or death seems trivial when one is in extreme despair. But, an entrepreneur often finds it hard to accept the hard truth that his/her company is dying. To Li, Bluegogo can still play the bike-sharing game that is led by Ofo and Mobike. The bike-sharing market has yet been fully filled. “China still needs another 30 million to 40 million sharing bikes before its bike-sharing market is saturated, and that number is 10 million to 20 million on the global market.” “It’s too early to admit defeat,” says Li.
During an interview with Kr-Asia in late August, Li suggested that Bluegogo’s main battlefield was still on the Chinese market. He said, “Our work currently revolves around three aspects, i.e. working into the Chinese bike-sharing market, gathering strength and delivering efficient bike-sharing services.”
It seems that Li still hasn’t given up the hope of locating investment in China.
Kr-Asia is told by Bluegogo’s employees that Li has been running around for investment in recent months. So far, Li has approached real estate developers, VC departments of banks and all VCs that hadn’t placed a bet on Ofo and Mobike.
He was so desperate that he even cast his eyes on users’ deposits.
In July 2017, Bluegogo elevated the deposit for newly registered users from 99 yuan to 199 yuan. The move was questioned by users on Baidu Tieba and Bluegogo responded: Bluegogo is currently building an intelligent credit rating system which will be used, in the future, to determine the amount of deposit a user shall pay. The deposit ranges from 0 yuan, 99 yuan, 199 yuan to 299 yuan depending on a user’s credit rating. Hu Yufei, VP of Bluegogo, pointed out in an interview with the press at the beginning of this year that most of the deposits would be reserved for deposit refund, and only a small proportion would be allocated to manufacturing of new bikes.
Bluegogo was still expanding recklessly into third-tier and fourth-tier cities, and overseas market even when its fleet was actually sinking.
In August 2017, Bluegogo announced that it had joined hands with a partner in Australia to bring its sharing bikes and operation into Sydney. In that case, it would be the first bike-sharing service provider in Sydney. Beyond that, it also planned to branch out into over 30 cities in another 10 countries in 2017.
Why is Bluegogo so committed to the idea of going overseas? Is it seeking a territory where it can dodge the competition with Ofo and Mobike and shine?
Well, at a time when IT startups are surging, it is also an advisable choice to join the camp of Ofo, Youon or Mobike when its endeavor of expanding overseas went down the drain.
Or perhaps, it is still expecting a savior. After all, it still has something to leverage.
Bluegogo has touted its bikes as the most comfortable sharing bikes since the first day they were launched. In fact, “Bluegogo doesn’t lose out” to any other players in terms of design and comfort, says an insider to Kr-Asia.
Li was convinced that riding comfort brings efficiency. “It may appear that the stationed bikes of Bluegogo are only one-eighth or even one-tenth of that of Ofo or Mobike. It’s because that many of Bluegogo bikes are on the road.” The usage of Bluegogo bikes peaks at around 9:01am and 12:01pm. “That’s when users just stepped out of their houses or offices,” says Li. He is alluding to the fact that Bluegogo, among all the other brands, is actually favored by users.
It is a pity if Bluegogo just vanishes like this.
The fate of Bluegogo now rests with its founder. On November 8, 2017, Li, in reply to a WeChat message from Kr-Asia, said that Bluegogo had been going through hard times and he was trying his best to guard the interests of its users, suppliers, investors and his teammates. “As Bluegogo’s CEO, I will fulfill my responsibilities and obligations. Hope you’ll understand,” says Li.
Li hinted earlier that he had some big news to announce about Bluegogo in October 2017. But, not a single piece of news has been heard from Bluegogo until now. How will Bluegogo ease its woes?
Written by Yang Lin and Yang Xuan
