Consumer

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

Talk about FOMO.

As much as we may think venture capitalists are crazy to keep pouring kerosene on the global ride-hailing wars, a quick look at the shenanigans on China's bike-share battlefield makes you wonder where the insanity stops.

Matrix Partners, Citic Private Equity Funds Management Co., Macrolink Group, Warburg Pincus LLC, Sequoia Capital Operations LLC, Didi Chuxing and even Temasek Holdings Pte all now seem to be suffering bouts of fear of missing out, and have decided to throw money at companies that don't actually seem to have business models.

They've even given birth to a unicorn, after Ofo convinced investors to fork out $450 million. Convinced is the verb Bloomberg News reporter Lulu Chen used, and it seems entirely appropriate. I'd love to see the slide decks that Ofo and rivals including MoBike have been showing investors to charm them out of more than $1 billion.

In their debut album, the Rolling Stones sang "You Can Make It If You Try." More famously though, they also warned that "You Can't Always Get What you Want."

Bicycle Bubble
China's top four bike rental companies have raised more than $1 billion. Over 30 competitors exist throughout the country
Source: CB Insights

"Uber for Bikes"seems to explain the notion that you can make it if you try. This overlooks the fact that Uber is not profitable. Not only that, there's little likelihood we'll see a profitable Uber Technologies Inc. anytime soon.

Worse for the bike-sharing companies is that their business is not like Uber and Lyft Inc. Those companies' massive advantage over taxi operators is that they don't own inventory or hire drivers: they're just agents matching drivers and riders, taking a cut in the process. (Read Leila Abboud's column on why this may change.)

The bike companies, though, are spending buckets of money to buy and distribute inventory in addition to the kind of back-end systems Uber and Lyft have built to track supply, demand, usage and payments. Their decision to forgo docking stations means riders can leave the bike anywhere they please, compounding the problem.

It's a rental business where customers don't have to return the product or keep it in good condition; they're merely required to stop using it at a random place and time of their choosing. This characteristic should worry U.S. municipal chiefs, because these startups are expanding overseas.

And since it's rental, the inventory needs are higher because the companies must have enough bikes on hand to meet peak demand -- they can't just recruit new inventory like the ride-share operators. Then they must spend again to retrieve and repair dumped bikes.

Unicorn With a Bike
Ofo becomes the latest Chinese unicorn after raising more than $450 million
Source: CB Insights
Note: List of Chinese venture-backed startups valued at $1 billion or more isn't exhaustive.

Finally, let's talk about revenue. At as little as 0.5 yuan (7 cents) per half-hour -- or free, sometimes -- it's going to take an extraordinary amount of time to recoup costs, especially when maintenance and replacement are included. And don't believe the companies are building scale or loyalty: On the contrary, they're demonstrating that bikes are a commodity and command no loyalty.

VCs, fresh from ride-hailing victories, may be disinclined to heed such warnings.

After the Rolling Stones had a hit complaining they couldn't get no satisfaction, the band followed up by telling people to leave them alone.

"Get off of my cloud," Mick Jagger sang.

Investors may be singing that tune for a while.

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

To contact the author of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net