E-learning firms see new trend in investment

(China Daily) Chinese venture capital and private equity firms are pursuing long-term profits in education as more and more investors are eyeing the sector in the wake of COVID-19 that has altered learning and teaching patterns, popularized online channels and added a twist to the investment trend, industry insiders said.

“Education firms’ funding rounds have become fewer this year, but the average amount of money raised in a single funding round has grown larger than expected,” said Chai Mingyi, associate vice-president of New Oriental Education and Technology Group.

Starting this year, the education sector witnessed a change in investor attitude. They no longer prefer gradual investments, Chai said at a conference organized by Securities Daily.

Jiang Kaiyang, director of investment bank Taihecap, said there is extreme differentiation in financing in the education sector this year. While leading education firms receive funding easily, smaller ones are facing difficulty.

Last year, there were 580 cases of financing to the tune of 16 billion yuan ($2.4 billion). The number of financing rounds shrunk to 305 this year, but 50 billion yuan has been invested so far, he said. “The average amount in a funding round rose about 6 times that of last year.”

Despite the general economic growth downturn due to the COVID-19 pandemic, online education has been one of the few growth areas in the country. Yuanfudao, a Beijing-based online education startup, raised a whopping $2.2 billion from two funding rounds in October.

In the past, many investors would have likely called it “unbelievable”.

“This year, we continue to increase investments in some follow-up projects, which are select leading companies in the education field,” said Shen Wei, executive investment director of US investment firm Warburg Pincus.

Shen said two aspects characterize the education industry this year-the number of larger fund infusions has risen; and leading companies receive funds more easily than in the past.

“Investors are concentrating on top companies in the field as they believe these companies have a competitive edge and will generate higher returns in the long term,” he said.

For Warburg Pincus, investments in the education field “cannot blindly chase the speed”, as such an approach may create unhealthy conditions and potential risks. Instead, patience is a virtue.

“It’s not appropriate to use GMV or gross merchandise volume-an indicator that the e-commerce sector usually uses to evaluate sales-to judge companies in the education industry,” said Zhai Jia, managing director of Sequoia China, a private equity firm.

“Therefore, when we offer post-investment services to education companies, we pay more attention to the quality of their products and teaching and see more about the actual effect, experience and word-of-mouth on products,” Zhai said.

After the epidemic, investor sentiment has shifted from optimism to doubts, mainly because the cost of acquiring customers is too high, said Liu Yaokun, head of education industry research at UBS Securities.

“At present, the customer acquisition channels among online education institutions overlap a lot and their ads are placed in the same place, so the effect of advertising is relatively poor,” Zhai said.

On a yearly basis, marketing costs of online education firms rose sharply in September and October, said a top executive of a leading online startup who sought anonymity.

“The cost of acquiring customers for low-priced courses is set to rise by 20 percent to 30 percent during the second half of the year,” the executive said.

“One reason for this is that a slew of industries such as e-commerce, gaming and automobiles tend to make a large number of investments during this period, especially during the Double Eleven Shopping Gala (in early November). Therefore, the bidding costs of online education startups will be higher.”

According to consultancy iiMedia Research, China’s online education sector is expected to achieve a higher sales revenue of 485.8 billion yuan this year, compared with 387 billion yuan in 2019. The total number of users will likely hit 351 million by the end of the year.

Source: By Cheng Yu | China Daily | Updated: 2020-12-23 10:50

E-learning firms see new trend in investment E-learning firms see new trend in investment Reviewed by TechCO on 12/30/2020 Rating: 5

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