When Technology Dreams Run Into Finance, Ofo Ensues

(Bloomberg Opinion) -- When you’re trying to build that tech dream, reality can really suck.

Ofo Inc. founder Dai Wei apparently just discovered this, and the results were displeasing.

His bike-rental company has immense cash flow problems and he’d even considered applying for bankruptcy, the Financial Times reported, citing a letter to employees. 

“For the whole of this year we’ve borne immense cash flow pressure. Returning deposits to users, paying debts to suppliers, in order to keep the company running we have to turn every renminbi into three.”

Dai joins a long list of visionaries who seemed to have held some hope that the rules of finance – or mathematics – don’t apply to them. No one taught these people that when expenses exceed revenues, you lose money. And when cash inflows fall short of cash outflows, you run out of money. But why should they learn when there’s always a rich sugar daddy around to shield them from the harsh world outside. 

One Financial Times reporter discovered that the virtual queue for deposit refunds was more than 10 million long. Assuming each deposit is the same, being 99 yuan ($14) apiece, then Ofo could be on the hook for $140 million simply to give money back to the people to whom it belongs.

That’s only 16 percent of the $866 million it raised in a March round led by Alibaba Group Holding Ltd. But we can’t put it past them to burn through that much in just nine months.

We got a chance to glance at the financials for rival Mobike thanks to Meituan Dianping’s takeover of that startup, and then the food-delivery giant’s subsequent IPO. Beyond the fact that Mobike is a huge money pit – losing 15.6 million yuan per day – it became apparent that they’d been playing word games with user numbers. 

Mobike’s PR agency was most perturbed with my account, and accused me of misunderstanding their previous public statements and the context for them. As a result, I advocate a new function for Google Translate: converting PR speak to human language. 

Last month I suggested that Meituan will realize that buying Mobike was a mistake and try to get rid of it. Two weeks later this prediction proved partially true with the FT reporting that it was preparing to spin off its European arm.

But finding a buyer for Ofo doesn’t look hopeful. It appears to have been rebuffed when it approached HelloBike for a merger, the South China Morning Post reported in October. And now bankruptcy is being touted as a possibility by the founder himself.

We tend to laud dreamers for daring to change the world and challenge the status quo. But even bold hopes are no match for the more concrete reality that you still have to make money.

To contact the editor responsible for this story: Rachel Rosenthal at rrosenthal21@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.

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