Ofo said to seek US$3b valuation in China funding wars

[HONG KONG] Chinese bike-rental startup Ofo is aiming to raise new funds at a valuation of about US$3 billion, people familiar with the deal say, further inflaming an already pitched competition for capital by startups backed by the country's largest technology firms.

The company is seeking roughly US$500 million, one of the people said, asking not to be named discussing an undisclosed matter. Its latest round comes just months after the startup secured at least US$450 million from ride-hailing giant Didi Chuxing, Jack Ma's Ant Financial, DST Global and other investors. Ofo spokeswoman Angela Cai didn't respond to messages seeking comment.

China's fledgling bike-rental companies are raising cash at an unprecedented pace, underscoring growing investor interest in ride-sharing beyond an automobile market dominated by Didi. An injection of cash will buttress Ofo as it competes with Beijing-based Mobike and more than a dozen other startups to bring two-wheelers back to China's grid-locked urban centers.

The fundraisings so far have been unusually large for companies at such an early stage of development. Before the current round, Ofo had amassed at least US$650 million in funding and obtained an estimated valuation of about US$2 billion. It plans to expand to 20 countries and as many as 200 cities this year. Mobike, backed by Tencent Holdings Ltd, this year raised US$215 million in a round led by the social media giant and Warburg Pincus. It's expanding in Europe on top of plans also to spread across some 200 cities globally this year.

Their battle - waged with generous subsidies - has already tossed the nascent industry into bubble territory, Ofo co-founder Zhang Siding said in April. Bicycles of every hue, including Ofo's own distinctive canary-yellow conveyances, now clog the streets of major cities from Beijing to Shanghai, sometimes infuriating local residents and merchants and prompting regulatory discussions.

Ofo's valuation came just three years after its inception on the grounds of Beijing's prestigious Peking University as a student project. Once emblematic of China's socialist working class, bicycles are again rapidly gaining popularity among students and commuters tired of inching their way through jam-packed automobile traffic. For as little as a few cents - and sometimes for free - users can unlock bikes with their phone, then dump the vehicles at their destination.

The cycles however tend to be easy targets for thieves and vandals and require massive manpower to maintain and re-distribute, spurring concerns about the business model's long-term viability. The battle underway in bike-rentals recalls the contest in cars between Didi and Uber Technologies Inc that the US company eventually lost. China's largest internet firms have already taken sides, keen to get a slice of the enormous user data and mobile traffic generated by millions of daily rides, while keeping their rivals at bay. Tencent, the operator of WeChat, has backed Mobike while Ant Financial, an affiliate of e-commerce giant Alibaba Group Holding Ltd, backs Ofo.

The startups are entangled in a proxy war between Tencent and Ant Financial, China's largest online financial services firm. At 20 million rides a day, Ofo is becoming a key channel to promote Ant's payment services, such as Alipay. It also linked users to its Sesame Credit system, so those with scores above certain levels can use its bikes without putting in deposits. In the other corner, Tencent's WeChat now allows access to Mobikes via its Mini Programs platform, sparing them the trouble of downloading the app. From there, users pay for their rides with WeChat Pay.

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