Tencent-backed Chinese EdTech start up seeks overseas funding

By Kirsteen Mackay


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EdTech is an exciting area of investment with many start-ups getting noticed. The Asian markets look particularly lucrative, and SPACs are popping up too.

Yuanfudao is a Chinese live tutoring app that’s been going great guns during the pandemic. The homework tutoring app founded in 2012 has gradually risen to prominence. In October it became the world’s biggest EdTech unicorn, with $2.2 billion in funding and a $15.5 billion valuation. Skip to today, and its market valuation is thought to exceed $20 billion.

In its latest fundraising round, it hopes to raise at least $1 billion. Based in Beijing, Yuanfudao is reportedly in discussions with potential investors including DCP Capital and Boyu Capital. Although no details have been finalized yet.As well as having the backing of Tencent, Yuanfudao is supported by many more prominent investors including Hillhouse Capital and IDG. And it seems its push to boost its valuation could be in the hope of a possible stock market IPO in 2022.

EdTech is a thriving industry

The sector is seeing unprecedented growth and investment. An area that was undercapitalized and poorly performing a few years ago is now thriving. In 2020 it’s believed global venture capital funding into online education start-ups more than quadrupled in 2020 to around $9.2 billion.

Rapid growth and expansion to take full advantage of the pandemic effect, meant companies like Yuanfudao had to spend a fortune to stay ahead of the game. Now it’s looking to replenish its funds in anticipation of further growth and expansion.

But rivalry is fierce, and last month Zuoyebang raised $1.6 billion from investors including Alibaba Group Holding Ltd. and SoftBank Vision Fund.

Yuanfudao’s early success is particularly impressive considering it’s up against some of China’s industry heavyweights such as TAL Education Group and ByteDance’s education division.

However, as Beijing clamps down on big tech, this rapid growth in EdTech has also drawn scrutiny from the powers that be.

From China to India, EdTech’s here to stay

But it’s not just China seeing exceptional growth in this space. Indian EdTech start-ups are also raising money successfully.

Leverage Edu is an Indian EdTech startup which raised approximately $6.5 million this month. This was part of its Series A funding round led by Mumbai-based venture capital fund, Tomorrow Capital. Existing investors Blume Ventures and DSG Partners also participated in the round.

In January Tomorrow Capital also invested around $1.9 million in a series A investment in BeyondSkool, an online upskilling platform for young students.

Meanwhile Delhi-based Lido Learning is hoping to raise $30 million from Singapore’s Temasek Holdings. If this goes ahead, Lido will be worth over $100 million.

The Asian private education industry is a lucrative place to be. It’s well known throughout the world that education is highly regarded in China and India. And childhood education is taken far more seriously here, than in many Western countries.

The Asian market has an ingrained culture of education as being vital to success. This makes it one of the biggest EdTech markets with the potential for lucrative returns.

Does EdTech make a good investment?

While investment in EdTech is fierce, some venture capitalists still prefer ecommerce, consumer and fintech sectors for added value.

Mercedes Bent of Lightspeed Venture Partners commented:

“EdTech didn’t tend to have heady valuations before the pandemic, and through 2020 I’m seeing EdTech companies raise at valuations that are reasonable for Silicon Valley; still nothing like what we see in fintech.”

Valuations are rising and in the financial markets this can be seen across the entire technology sector. However, what EdTech may lack in dizzying valuations, for many investors it provides an opportunity for acquisition and exit strategies such as via SPAC.

Just last month Nerdy which owns the popular tutoring business Varsity Tutors, announced it’s merging with TPG Pace Tech Opportunities (NYSE: PACE), a publicly traded SPAC since 2015. It’s expected this will take place in Q2 of 2021. And the deal will give Nerdy a valuation of $1.7 billion.

Meanwhile, Skillsoft, a corporate learning company, merged with IT skills provider Global Knowledge Training and was taken public via SPAC by Churchill Capital Corp II (NYSE:CCX) in October.

Then there was the story of Vista purchasing software development course provider Pluralsight (NASDAQ: PS) for $3.5 billion in December. This was one of the largest enterprise buys of 2020. And Pluralsight has been publicly listed for less than two years.

This is not the first time we’ve discussed EdTech at Value the Markets. Read our report here.


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Author: Kirsteen Mackay

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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