Too much VC money chases too few ideas in China as services for renting bicycles and phone-charging stations flood major cities
Li Yuan / Wall Street Journal : Tweets: @wsjbusiness and @don_homer Tweets: @wsjbusiness : China has 131 billion-dollar startups, 30 more than the US. One reason: $199b in new venture funds looking to invest http://www.wsj.com/... Don Homer / @don_homer : “Don't ask me how the business model might work,” says one early Mobike investor. “I don't know any longer.” http://www.wsj.com/...
Context & Ripple Effects
The bike-share land grab was already well funded before this piece: Ofo raised $130M and Mobike $100M in late-2016 rounds backed by Chinese tech giants. What changed by mid-2017 is scale — roughly $199 billion in new venture funds hunting for deals pushed capital past bikes into phone-charging stations and other thin-moat services, even as an early Mobike investor admitted he could no longer explain how the business model works.
The warning signs were on record months earlier: analysts had already called for discounted on-demand services to fade through consolidation and an investment drought after China's tech sector peaked at $20.3B raised in 2015. This article captures the mania phase between those two points — too much money meeting too few ideas.
First-order effects
- Mobike, Ofo, and a wave of copycat bike-rental and charging-station operators get cheap capital to blanket major cities with hardware, competing on deployment volume rather than unit economics while investors openly question whether any of them can turn a profit.
Second-order effects
- With rides priced near zero, the viable monetization path shifts to the transaction data each bike and charging station generates — companies, investors, and eventually the government begin treating that data stream as the real prize in the sharing economy.
Third-order effects
- The pattern ends the way the earlier drought call predicted: a bust that wipes out many bike-share investors and litters cities with abandoned bikes, followed by state-backed entrants pressuring incumbents under regulatory scrutiny — and years later, Beijing trying to restart the venture engine with new yuan-fund measures after 2023 VC investment fell 7% to $69.9B.
The trend: Excess Chinese venture capital cycles through low-margin hardware services in a boom-bust pattern that ends in consolidation, government intervention, and policy attempts to rebuild the funding pipeline.