The recent Chinese stock market slowdown and slower economic growth have raised concerns over the high case burn rate at O2O startups, resulting in a drop-off for funding for those startups. In the US, similar startups have gained traction due to the convenience that they bring to end consumers. However, in China, consumers are attracted to such services due to the discounts they offer.
Roughly half of the capital raised by such startups typically go toward subsidies for customer acquisition. According to Ken Xu, a partner at venture capital firm, Gobi Partners, 30 to 40 percent of O2O startups have shut down over the past few months.
One car-repair app based in Shenzhen, Xiuyang, shut down in August after being unable to keep up with its competitors in offering discounts and promotions as it ran out of funds, after spending more than one third of its initial capital on customer acquisition.