Xiaoming Bike, a China-based bicycle sharing service backed by bicycle manufacturer Cronus Bike, announced on Thursday that it will file for bankruptcy, according to China Money Network.
Founded in 2016, Xiaoming runs a bike sharing service that requires users to pick up and drop off bicycles at specific locations. The sector has seen fierce competition, with China Money Network identifying six providers that have collapsed in the past year alone.
Xiaoming’s decision comes after the startup lost a lawsuit last week brought by statutory authority Guangdong Consumer Council in December 2017 urging it to refund deposits to consumers. The court ordered Xiaoming to return refunds and disclose related transaction history.
The startup revealed it had received $128m in deposits from more than 4 million users, and while it was able to return money to approximately 80% of its customer base, the remaining 700,000 consumers will be left out of pocket as its bank account is drained.
Chinese regulator the Beijing Municipal Bureau of Financial Work last year considered tightening regulations around customer deposits, forcing firms to keep the money in accounts separate to those used for working capital, though no such rules have yet been introduced.
Xiaoming most recently raised a nine-figure renminbi (RMB100m = $14.8m) amount of series B capital in July 2017.
The series B round was led by NewMargin Capital, the same VC firm that had previously supplied an eight-figure renminbi sum in November 2016. Cronus Bike had injected $14.8m in Xiaoming the month before, according to China Money Network.