Can the Chinese Tutoring Bull Be Tamed?

Market Trends

Can the Chinese Tutoring Bull Be Tamed?

By Rajit Malhotra     Sep 16, 2019

Can the Chinese Tutoring Bull Be Tamed?

Investors seeking to fund tutoring companies usually look for those that target massive markets, have scalable tech-enabled products and focus on highly-sought skills. So it’s no surprise that China, India and the U.S., the three most populous nations in the world, are hotspots for investment activity. India and China also boast growing middle classes hungry for skills that propel them socioeconomically.

Since 2010, nearly 99 percent of disclosed investment capital in the tutoring space has gone to companies in these three countries. Based on the total amount of deals, the U.S. leads the pack at 41 deals, compared to 29 in China and 14 in India.

But when it comes to check sizes, investors have been much more bullish on the tutoring sector in China.

Total fundraising for tutoring companies since 2010 (China, India, U.S.)
Source: EdSurge Intelligence

When looking at the total funding amount for tutoring companies in each of these countries, our analysis found that deployed investment in China is nearly 15 times that of the U.S., and 12 times that of India. The vast amount of investment in China is driven by the number of mega deals, with over one-third of them equal to or greater than $100 million. All of these mega deals are later-stage funding rounds, Series C or later. The biggest is a whopping $500 million round for VIPKid, which happened in 2018.

By contrast, the largest tutoring funding round in the U.S. goes to Varsity Tutors, which raised $50 million, and to Byju’s in India, which raised $150 million.

Count of tutoring deals since 2010 by funding size
Source: EdSurge Intelligence

Most of these well-funded tutoring companies target PreK-12 students in China. They fit into two major categories: either a company assists with everyday homework problems spanning multiple subjects, or focuses on helping students learn English as a second language.

With a service that connects Chinese families with English tutors based in North America (many of them teachers), VIPKid pitches its tent squarely in the latter camp. The company’s $500 million fundraise last year constituted nearly 18 percent of all capital deployed to the tutoring sector in China since 2010. However, VIPKid is not the only big kid in town, as other well-funded companies such as DadaABC have also raised hundreds of million to claim their corner of the tutoring playground.

But how long will the big checks keep coming? In recent months, Beijing’s increased regulation of online education platforms has made investors more cautious. This July, the country’s Ministry of Education issued guidelines to regulate the content and duration of online education sessions, and to ensure that teachers have the right qualifications. Some of this oversight could well make investors wary. Last month, Reuters reported that Tencent Holdings has called off plans for a new $150 million investment in VIPKid.

While the steady deal flow suggests that investors still see room for companies to gain additional market share in China, how many large ones can coexist in the space remains uncertain. The competitive landscape, paired with increasing regulatory pressures, may lead investors to consider the other billion-plus sized market: India. Some already are, with the Qatar Investment Authority and Owl Ventures having invested in Bangalore-based Byju earlier this year.

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