Why Investors Are Betting Bike Sharing Is the Next Uber

Urbanization, exercise and expense. JL

Erin Griffith reports in Wired:

In China bike sharing has exploded, thanks to an influx of venture capital and a model that eschews docks, making expansion cheaper and easier. Dockless bike companies scatter their bikes around a city, and customers use an app or scan a code to unlock them. Now come dockless US rivals. Investors are hot on bike sharing because the Chinese companies have proven it can be a big business. They’ve figured out how to enter a market, how to build internet-connected bikes that lock themselves, and how much to charge.

There’s a trope that foreign startups can’t innovate—they just copy ideas created in Silicon Valley. The success of China’s dockless bike-sharing startups has flipped that script, and now US companies are scrambling to catch up.

Bike-sharing programs have spread across the US in recent years, but slowly. It takes time to secure government and corporate sponsorships, which cover the cost of installing expensive docks to hold the bikes, as well as credit-card payment systems. Motivate, the country’s most prominent operator, has programs in nine US cities.

In China, though, bike sharing has exploded seemingly overnight, thanks to an influx of venture capital and a model that eschews docks, making expansion cheaper and easier. Dockless bike companies scatter their bikes around a city, and customers use an app or scan a code to unlock them. The bikes lock themselves and can be left near a bike rack, on a sidewalk, or in a park. Without the need for docks, these startups can launch in a new city in a matter of weeks, no government subsidies required. For now, they’re subsidized by venture capital.

Dockless Chinese companies are expanding into the US. Mobike, a two-year-old Chinese startup valued at $3 billion, launched in Washington, DC, in September. Ofo, its top rival, launched in Seattle in August.

Now come dockless US rivals. On Monday, San Francisco-based LimeBike said it raised $50 million in funding led by Coatue Management, valuing the company at $225 million. The deal shows how aggressive things are getting: LimeBike was started just 10 months ago; it raised $12 million in March. The company already operates in 20 US markets, including Seattle and Dallas.

Investors are hot on bike sharing because the Chinese companies have proven it can be a big business, according to Bill Maris, who invested in LimeBike via his new firm Section 32. What’s more, they’ve figured out basics like how to enter a market, how to build internet-connected bikes that lock themselves, and how much to charge. (LimeBike is as inexpensive as $1 a ride). “A lot of questions have been answered,” he says. Jeff Jordan, a partner at Andreessen Horowitz who led LimeBike’s March funding, was inspired by the rapid growth of Mobike and Ofo. For dockless bike sharing to work stateside, he believes operators need strong relationships with local governments.

Technically the dockless companies can enter a market without asking permission. They only need to leave some bikes around the city, and anyone with the app can start riding. But since bikes are portable and can be left anywhere, they’re vulnerable. An unhappy city regulator could round them up and haul them away at any time. “[This is] ask permission, not forgiveness,” Jordan says, reversing a popular Silicon Valley mantra. “It’s not like Lyft, where the cars are moving around, or Airbnb, where you don’t publish the address.” (Andreessen Horowitz has invested in both companies, which have tussled with regulators in cities around the world.)

The market is getting crowded. Five bike-share companies are operating in Washington, DC—Mobike, LimeBike, Ofo, Spin, and JumpDC. It’s reminiscent of the early days of ride-hailing, when it felt possible that Hailo, TaxiMagic, Gett, Juno, or Whisk might take significant market share. Uber’s aggressive fundraising propelled it to its leading position. “We did not expect to be running unopposed,” Jordan says, and he expects the market will consolidate to a “winner-take-all” situation similar to ride-hailing.

LimeBike believes it can fend off rivals with a city-friendly approach. That includes investing in higher-quality bikes (including safety features like solar-powered lights), sharing aggregated usage data with cities, and educating riders about where to leave their bikes. In addition to cities, LimeBike is targeting universities and corporate campuses, including the University of Notre Dame and Arkansas State University. “It’s a relationship land grab,” says CEO and cofounder Toby Sun.

Mobike cofounder Hu Weiwei says she believes being the “biggest and first” player in the market with operations in 100 cities gives her company an advantage. Further, Mobike has customized its bikes for the US to include features like gears.

Motivate, the docked bikeshare leader, has been critical of the what it calls “rogue” dockless bike-share programs. It is also venture-backed: The company has raised an undisclosed amount of funding from Generation Investment Management, the investment firm of Al Gore, as well as Equinox Fitness and Alphabet’s Sidewalk Labs. Motivate’s dockless rivals argue that their services are complementary to the docked programs, since they aren’t limited to areas where docks are installed and can scale up or down quickly to meet changing demand.

The bike-share companies are spending their venture funding aggressively to compete. Like Uber and Lyft, the bike-share companies argue that they can turn a profit in markets where they’ve operated the longest. Unlike Uber and Lyft, they don’t have to pay drivers, though they have to maintain bikes, replace stolen ones, and move ones parked inappropriately. Sun says LimeBike can be profitable if each of its bikes is used two to three times a day. “The model works, but we need a lot of bikes,” he says. “People ride more because they see the bikes. It’s very simple.” The influx of competition means LimeBike is pedaling as fast as it can.