New online services have tougher time fundraising

Ding Jinlin has earned more than 200 five-star ratings from her customers since June after registering as a part-time ayi, or housekeeper, through an online tool that helps connect people with service providers.

The tool for booking housekeepers, located at 58.com, works something like Uber, the taxi-hailing app. The customer pays a fee up front when scheduling a housekeeper, and the worker keeps all the money earned on a job.

Ding said she earned more than 8,000 yuan ($1,258) in September. The average salary of business employees in Beijing was 6,463 yuan in 2014.

The website this month adjusted the service fees for all ayi with a "gold rating", such as Ding, from 35 yuan per hour to 25 yuan to attract more orders. That means she can only earn 5,710 yuan if she worked the same number of hours as last month.

Rapidly growing online-to-offline services enjoyed skyrocketing growth in the first few months of this year thanks to abundant capital in the industry, which allows online service providers to ignore commissions from its users and provide subsidies.

However, analysts have warned that startups now need to tighten their purses because fundraising is likely to become more difficult as investors have become more cautious after the big fluctuations of the stock market earlier this year and a slower-growing economy.

Shen Lingkun, an analyst with market research company Zero2IPO Group, said venture capitalists have tightened their investments in the third quarter. The total number of venture capital investment transactions during the quarter in China was 716, a decline of 20.4 percent compared to the previous quarter.

The Internet industry attracted 257 transactions, followed by IT and the telecommunication industry. The three accounted for about 66 percent of the total capital investment in the third quarter.

China's largest online ride-booking company, Didi Kuaidi, raised $3 billion of fresh investment through its latest fundraising round, which is by far the world's largest transaction for a non-listed company. Didi recently cut its subsidies to registered drivers and passengers despite its abundant cash flow.

New emerging business models also face regulatory uncertainties that could greatly increase costs. One example is recent draft rules released by the Ministry of Transport that require car-hailing service providers to sign labor contracts with the drivers.

Wang Yumei, a senior analyst with Huatai Securities Co, said at a recent forum that most O2O service providers are the cash burning type that require a round of fundraising every three months.

Cash-burning startups should spend more efforts on improving the customer experience and optimize their business models, she said.