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China's online education providers succeed in fund-raising despite losses
Online learning, expected by many to become the next most sought-after service after bike-sharing, is drawing in considerable funding in China. Since this August, multiple companies have successfully raised funds for their projects, with the total amount of financing in three quarters surpassing that of the whole of 2016. A couple of top players in the sector have been valued at over USD 1 billion. However, most market participants are merely burning money to survive, reported the National Business News.

Several industry insiders told media although some enterprises have proved the business to be capable of keeping strong cash flows, resources are beginning to concentrate into the hands of top players.

Based on iResearch data, as of September 20, the sector had held 147 public fund-raising activities to collect 7.5 billion yuan. Although the capital market is chipping in the sector integrating internet technology and education, it has not yet proven to be a profitable business. In an earlier television report, CCTV, China's national broadcaster, reported a survey as showing that 70 percent of online education companies losing money.

The so-called “K12” has shown especially strong momentum to keep a strong cash flow, rising to be the unicorn of the industry. “K” refers to Kindergarten while “12” represents the 12 years' education from primary to high school.

According to data, in July, yuantiku.com raised USD 120 million; on August 14, zhibo.zuoyebang.com announced to gain financing of USD 150 million. Both online companies provide services to assist young kids with their homework. On August 23, VIPKID, an online brand providing English language teaching by native speakers, announced to have received a funding of USD 200 million.

Undoubtedly, behind the boom in financing lies a surge in demand for the services. Based on Jiguang Big Data, this August, among the five most popular online learning apps, four specialize in assistance in homework. For example, the most popular zhibo.zuoyebang.com boasts active users of 10.65 million on a day basis. Some industry insiders told the National Business Daily that parents are willing to pay the money for their children.

“With rising consumption and (government) allowing families to have second child, China is expected to become one of the most vibrant markets for online learning,” said Mi Wenjuan, the founder and CEO of VIPKID.

Jiang Min, the vice president of Zhen Education Fund said in an interview that a couple of unicorn companies in the industry have been valued at over USD 1 billion in the past year. It is notable that some Internet giants are also involved in the investment frenzy in online education. Zhibo.zuoyebang.com started as a subsidiary of Baidu while yuantiku.com and VIPKID gained investment from Tencent this year.

Last year, 51 Talk became the first online education company to go public in the United States, five years after its establishment. Huang Jiajia, the founder of 51 Talk told the National Business Daily that the company got listed on the New York Stock Exchange because investors had witnessed a rapid growth of online education. “Generally speaking, offline educational institutions could at most have year-on-year growth of 50 percent, while for online education, the annual growth could exceed 200 percent.”

Perfect Puzzle Capital founder and partner Wang Lei told the National Business Daily that, at the early stage, it is not easy to seek funding. “Compared with the year 2016, the amount of financing is likely to hit new record this year when top runners have bigger chances to draw investors' attention.”

However, behind the high evaluation and investment, the business is not always a good bargain. As of the end of 2016, there were over 400 companies involved in online education, among which 70 percent are losing money, 10 percent could merely make ends meet and only 5 percent could make a profit, while 15 percent are on the verge of bankruptcy, according to a previous CCTV report.

From its establishment in 2011, 51 Talk has been running at a loss, even two years after it got listed on the NYSE. Its latest Q2 financial report indicates the company lost 139.3 million yuan in the quarter, compared to the 137.9 million yuan loss in the same period last year. In Q1, the company's loss scaled to 140 million yuan.

In the process of rapid capital expansion, online learning sector faces different challenges, said Jiang Min. In her view, some companies are overvalued and their profitability still needs to stand the test of time. For startups in the business, most of them still face difficulties in forming and keeping a qualified teaching team.

Despite the challenges, the huge user base provides a broader development space for online learning. Given that many online education companies have background in education and training businesses, Jiang Min advised prospective investors to focus more on the new companies' capabilities to recruit, teach and do research, while for those online educators developing from publishing enterprises, their competence in IP will be more valued.

 


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