Bike-sharing startups gearing up to pedal their services nationwide

Chinese tech startups are notorious for copycatting and never innovating. Baidu is the Google of China, Renren is the Facebook of China, Didi Chuxing is the Uber of China, and Tujia is the Airbnb of China, to name a few.

But now U.S. companies are flipping the script and starting to imitate a new wave of startups coming out of the Middle Kingdom. Nowhere is this more apparent than in the burgeoning bike sharing space.

China is a natural market for bike sharing, where there are about half a billion bicycles, more than any other country. Innovative Chinese startups are now flooding cities like Beijing and Shanghai with sleek, chainless, self-locking bicycles that are outfitted with puncture-proof airless tires and anti-rust aluminum frames. Users can track down these GPS-enabled bikes on their smartphones, as well as unlock the bikes and pay for them via a mobile app.

The beauty of these bikes is that they do not require a docking station, meaning riders can pick them up and drop them off anywhere at any time. By eliminating the docking station, these startups are appealing to a much wider audience and greatly improving on traditional bike-sharing models.

Two-year-old Chinese bike sharing startup Mobike has raised a jaw-dropping $925 million in venture capital from the likes of Tencent, Sequoia Capital, TPG and Hillhouse Capital. Ofo, its closest rival in China, has pocketed an earth-shattering $1.3 billion from Alibaba, Atomico and Matrix Partners China, among others.

With funding like this, it’s no wonder that U.S. entrepreneurs are taking notice and coming out with their own copycat versions. LimeBike, which has a fleet of bright green bicycles that connect to an app to track location and collect payments, has raised $12 million from Andreesen Horowitz and DCM Ventures. And Spin just raised $8 million from Grishin Robotics for its take on dockless bike sharing.

But the obvious question is whether these U.S. knockoffs can compete against their heavily funded Chinese counterparts, which are clearly looking to expand globally.

In a recent blog post explaining why it invested in Ofo, Atomico said the bike sharing startup “is poised to become the first Chinese internet startup company to scale globally and has clear potential to become a category winner.”

Atomico added that “we want to back the most ambitious founders tackling the biggest problems who are ready to go global.”

So how can much smaller U.S.-based startups like LimeBike and Spin sneak ahead of their Chinese forerunners?

By shifting gears and playing nice with city governments, says Euwyn Poon, co-founder of San Francisco-based Spin. “We have to negotiate with U.S. cities to figure out win-win situations, so we are really working hard on that front,” he says. “I think that is a major advantage we have over our competitors from China, which really haven’t gotten the right feel for how to work with government officials. Instead, they have been coming in pretty brashly.”

By way of example, he cites the case of Chinese bike sharing startup Bluegogo, which attempted to make a big U.S. splash earlier this year. The company was set to unleash a fleet of bikes on the streets of San Francisco. But local regulators caught wind of the plan and threatened to impound the bikes. The city officials feared that abandoned bikes would litter the sidewalks and wreak havoc on pedestrian traffic.

Calling the bike-sharing service a “public nuisance,” San Francisco Supervisor Aaron Peskin said he would begin drafting legislation for stricter local laws preventing unpermitted use of bike sharing.

“Cities have wised up to the sneaky tactics of tech startups, especially after their experiences with companies like Uber and Airbnb,” Poon said. “Cities really appreciate that we are coming in and working with them. They quickly go from concern about our service to excitement.”

Spin is set to launch in Seattle and is working on pilot programs with other major U.S. cities. The company’s orange-colored smart bikes are GPS-enabled and self-locking and meant to be parked anywhere legally and responsibly.

Poon adds that dumping a bunch of bikes on city streets is not in Spin’s best interest. He says the company wants to ensure its bikes are actually getting used and that it’s making transportation more convenient and cost effective. “Clogging streets with bikes is not part of our business model,” he insists.

He says that, fundamentally, bike sharing is a solution that many cities want because it’s an opportunity to reduce pollution and traffic. In fact, cities like New York, Paris and London have embraced first-generation bike sharing solutions that feature kiosk-based, rack-mounted bicycles.

Venture-backed companies such as Motivate, Zagster and Social Bikes have made inroads in the United States with their rack-mounted bike sharing systems. But Kyle Lui, a principal at LimeBike investor DCM, believes that these companies have barely made a dent and that the U.S. market remains largely untapped.

He argues that first-generation bike sharing systems are woefully inadequate from a user perspective because they are confined to a small number of designated locations. It’s as if Uber could only pick up and drop off users at one of 10 different spots in San Francisco. People want the freedom of being able to take the bikes anywhere, he argues.

“There is still a lot of friction with some of these existing bike sharing programs,” he says. “LimeBike is removing some of that friction by leveraging mobile booking, mobile payments, on demand self-locking bikes outfitted with GPS to really improve the convenience for end consumers.”

LimeBike, which costs users about $1 per ride, is now rolling out in a number of cities nationwide. But already there have been a few bumps in the road for the San Mateo, California-based company, whose lime-colored smart-bikes are enabled with GPS, wireless technology and self-locks.

Key Biscayne, Florida, is the first U.S. city to officially launch a LimeBike program. But some of those bikes are ending up in nearby Miami Beach, which is angering city officials, who have threatened to confiscate the bikes and fine LimeBike.

But Lui insists that all U.S. cities will ultimately hop on to dockless bike sharing. “In many cities, transportation is fundamentally broken,” he says. “In particular, last mile transportation is something that no one has really solved. Not public transportation, not ride sharing, not even existing bike share programs. So LimeBike really has the potential to solve that last mile human transportation problem—and do it cost effectively and with very low friction.”

In terms of the overall size of the market in the U.S., Lui believes bike sharing could quickly reach a billion dollars. “For a dollar a ride, can the market sustain a billion rides per year? That is easily possible,” he says. “We believe we can expand the overall market of people who will ride bikes in the city. For people who are walking today, with a startup like LimeBike, many will choose to bike instead.”

But Lui admits that investing in a bike sharing startup is not exactly a ride in the park. After all, there are those deep-pocketed Chinese competitors to contend with. “They are a credible threat and have a huge capital advantage, so they can’t be discounted,” he says.

What’s more, bike sharing is a capital intensive business, which means that startups like Spin and LimeBike will have to raise a satchels of money if they want to compete in the market.

“Building supply will be critical, so any startup will have to make meaningful investments in both its bike fleet and in customer acquisition,” says Lui. “What’s required here is perfect execution between the ability to raise capital, work with city regulators, and drive customer engagement.”

In other words, the U.S. copycats will have to pedal hard to catch their Chinese rivals.

Tom Stein is a Palo Alto, California-based contributor. He can be reached at tom.stein@yahoo.com.