Companies providing online-to-offline services should be treated with caution in China.
In 2015, there were 21 'unicorn' tech companies valued at over $1bn, many of which were providing services in the booming O2O commerce space. However, investors are now warning of a bubble growing in the sector as more and more competition rushes into the space and highly-valued companies start to fall by the wayside or become combined in mergers.
Shequ001, for example, boasted more than 2,000 employees and a valuation of $312m in March last year, but now has only a few dozen workers left and is struggling to stay afloat. Keen to expand, Shequ001's CEO invested too much in growth, burning through cash and leaving the company unable to secure more funding or even pay its employees.
While industry giants Alibaba, Tencent and Baidu currently dominate the O2O sector - which includes anything from online shopping and hailing cabs to group discounts at bars, restaurants and cinemas - many entrepreneurs and funding companies have been attempting to enter the lucrative segment. However, even aggressive funders are finding it difficult to compete in a cash war with China's existing online titans.
Many analysts are warning of the tech bubble as PE and VC firms fund aggressive growth. Startups without a plan to make profit hope to then sell them back using public funds or 'mom and pop' investors buying into their growth. This effect creates a dangerous bubble that could destabilise China's stock market even further.
For those looking to partner with O2O startups, proceeding with caution would be a wise decision.