How a simple idea led this former journalist to US$3 billion buyout of Mobike

Mobike lured investors by cultivating a premium gloss. It createdbikes with snazzy orange wheels that cost as much as 3,000 yuan(S$624) and equipped them with satellite positioning.

HONG KONG - It seemed like a nutty idea at the time - and itstill does.

Three years ago, Ms Hu Weiwei and her co-founders decided tostart a business letting people share bicycles for pennies perride. People could hop on for a quick ride to the subway orsupermarket, then leave the bike right out front without the hassleof finding a parking rack.

In a shocker for most of the rest of the world, the Chinesebusiness boomed and this week the former journalist and her cohortsagreed to sell Mobike in a deal that values the startup at US$3.4billion (S$4.4 billion).

Food delivery giant Meituan Dianping is acquiring thecompany.

The founders and investors pocket more than US$1 billion in cashand Ms Hu - who is turning 36 this year - and her team get to keeprunning the business.

It is a story of the New China, where tech parvenus amass richesat mind-boggling speed. A generation of younger entrepreneurs iscapitalising on the mass adoption of smartphones, faster Internetspeeds, easy mobile payments and abundant venture capital.

Backed by giants Alibaba Group Holding and Tencent Holdings,Chinese startups have been able to burn billions in cash to buildbusiness models that often ultimately benefit the twobehemoths.

"In world Internet history you have never seen a phenomenon likethis; so much money raised, so quickly with such youngentrepreneurs," said Mr Ben Harburg, a managing partner at MagicStone Alternative Investment, which invested in both Meituan andMobike.

Investment firm China Renaissance acted as the adviser forMobike, most recently valued at US$3 billion according toresearcher CB Insights. The deal values the bike-sharing firm'sequity at about US$2.7 billion, and Meituan will assume roughlyUS$700 million in debt, one of the people said.

HUMBLE BEGINNINGS

Mobike's unlikely tale began in 2015 when Ms Hu's team workedout of an office next to their building's communal toilet. Alongwith co-founders such as Mr Davis Wang, she hatched the idea ofpooling bicycles - long associated with Communist China'sindustrial boom - to help harried urbanites glide through worseningcongestion.

Around that time, a bunch of college kids led by Mr Dai Wei wereexperimenting on-campus with the same idea, eventually creating Ofo- now Mobike's biggest rival.

It wasn't easy. In China, the Internet business is trial byfire. At least three dozen companies jumped into the field andmountains of bicycles piled up in Beijing and Shanghai.

Municipalities struggled to keep streets and sidewalks passable- local governments in the United States and Europe balked as theChina startups tried their free-wheeling approach abroad.

More than 34 smaller competitors have shut due to high operatingcosts and a lack of funding, according to the China ConsumerAssociation. Now, Mobike and Ofo account for about 90 per cent ofthe market, Counterpoint Research estimates.

Mobike lured investors by cultivating a premium gloss. Itcreated bikes with snazzy orange wheels that cost as much as 3,000yuan (S$624) and equipped them with satellite positioning. Itspricing was double that of Ofo's, but that eventually came down andwas often free when the two waged subsidy wars.

But a steady stream of funding from some of the biggest names intech investment - including Alibaba, Tencent and Sequoia - helpedthem flood the streets with bikes. It also let them replenish thebikes confiscated on a daily basis by city authorities trying toclear their sidewalks of the resultant clutter.

"Mobike's case shows how China's full of opportunities for smallstartups to grow quickly in very short period of time," saidProfessor Teng Bingsheng at Cheung Kong Graduate School ofBusiness.

"Many of the Chinese tech startups will eventually take sidesbetween Alibaba and Tencent because the pair simply covered a widearea in terms of Internet services."

BEING A UNICORN

In the US, it takes on average seven years for a startup toachieve unicorn status or more than US$1 billion in valuation,according to Boston Consulting Group.

In China, that figure is four years.

The deal also highlights how allegiances can shift in the blinkof an eye. In the bike-sharing space, three camps remain. There'sMeituan and Mobike, backed by Tencent, the social media goliathusing both to prop up its mobile payments business. In another campis Alibaba, which has drafted Ofo and No. 3 player Hellobike.

"It wasn't just that they were in the middle of a war betweenthe Alibaba and Tencent Internet giants who were financing them andthe venture funds," Mr Harburg said. "They were also, of all thetechnology companies in the world, the most under the publicspotlight because they're one of the few visual manifestations ofthis Internet wave that is hitting China."

Then there's Didi Chuxing, the latest to wade into the fray.Didi was once Ofo's strongest backer. But that relationship souredin past months as Didi sought more control. The company thenattempted to invest in Mobike but did not follow through, accordingto people familiar with the matter.

Tencent, a backer also of Didi's, gave its blessing to Meituan,one of the people said.

Meituan itself is treading a fine line with its most importantbacker. The company directs some 60 per cent of its paymentstraffic to Tencent, but is developing its own transactions system.As Meituan evolves into a super-app that offers everything fromfood delivery to ride hailing, it may no longer be content withjust being Tencent's proxy. It is already said to be planning aninitial public offering this year, seeking a valuation of at leastUS$60 billion.

"These second-tier companies might be used as proxies forAlibaba and Tencent for now, but within their own camps they alsoare playing a game of chess and trying to build bigger ecosystems,"said Zhou Xin, President of Beijing-based Internet consultancyJkinvest Bigdata.

Mobike's big pay-day aside, bike-sharing remains a fraughtarena. Both Ofo and Mobike have raised billions via some eightrounds of funding, according to Counterpoint. Yet they areunprofitable, said analyst Zhang Mengmeng at Counterpoint. And thebike wars continue.

"The fees charged are not enough to cover the costs of runningthe operation," Zhang said. "It seems unlikely that there will beany clear ways of monetisation from big data in the nearfuture."

Ms Hu, on her personal WeChat account, turned reflective as thedeal was completed. She said Mobike's mission is consistent withMeituan's vision.

"From my perspective it's a new beginning," she wrote, includinga link to the Nine Inch Nails song, "The Beginning of the End".