Once a favourite, the sharing economy is losing its charm with Chinese investors Part (1/5)

The dramatic rise and fall of startups

Photo:Shutterstock.com

LI Yuanfeng, CEO of Falcon Angel Investor (猎鹰创投), a young investment firm, is shifting his attention away from the sharing economy.

A year ago, the sharing economy had been his company’s focus, accounting for over 50% of its investment activities. Once, to get ahead of others, LI transferred an initial sum of investment to a sharing economy startup half an hour after meeting its founder. There was a time when LI’s mailbox was inundated with a dozen business plans per day from sharing economy startups, yet in the past six months, all he saw were e-mails regarding “blockchain”, “new retail” and “mini program.”

Half of 2018 has already flew by. This time last year, power bank sharing had been very popular, but since then has quieted down. Until now, Xiaodian (小电) has been the only power bank rental company to have raised new investment so far, 10 months after its last round of financing. The company created quite a hype last year after closing three financing rounds in 40 days.

More than one investor has described to 36Kr, a Chinese biztech media and KrASIA’s parent company, how they saw entrepreneurs previously active in the sharing economy scene turn into blockchain experts overnight, leaving in their wake sharing economy businesses that have either been shut down or transformed.

It all began in the summer of 2016, with the instant rise of Mobike and Ofo. The concept of sharing economy had since then rapidly gained traction, with the two each raising five financing rounds in half a year. The fever culminated with the advent of battery sharing services in the spring of 2017, but it lasted for only a few months before the hype began to subside: As new investment hotspots such as staffless convenience stores came into the picture, and companies built on the sharing economy concept faced being shut down or suspension of services, saw both investors and entrepreneurs flee the market. Meanwhile, Mobike and Ofo, which had spearheaded the boom of the sharing economy in China and once favorites with investors, were busy responding to merger rumors into the second half of 2017.

In April 2018, while Ofo was left to the hands of fate, Mobike announced its $2.7 billion acquisition (excluding $1 billion in debt) by Meituan-Dianping (美团点评), thus spelling the end of the sharing economy heyday.

Having repeatedly witnessed how hotspots come and go, Chinese entrepreneurs and investors have gotten the hang of the pattern. Investors are quick to enter and withdraw from an emerging field, resulting in the dramatic rise and fall of startups and even shorter-lived hotspots. Speed is increasingly becoming a golden rule in the Chinese investment and startup scene.

By examining the rise and fall of the sharing economy in China, in a sense of what a typical lifecycle of an investment hotspot in China looks like, hopefully, there will be an answer to the following question: If capital has an inherent tendency to gather around hotspots, is there ever a choice for entrepreneurs and investors, one in which they are freed from the urgency to chase after hotspots?

Written by: LIU Jing

Editor: HONG Hu


This is Part 1 of a 5-Part feature

Part 2: Copying the success of bike sharing

Part 3: An increasingly smaller pie

Part 4: The sharing economy: just a passing fad

Part 5: Ever shifting investment hotspots