Part V – I Overview of the Investment and Fundraising of the Online Education in China of 2015
I. Profile of the fundraising by online education companies
Online education investment storm has lasted for more than two years. As for financing whole online education industry, according to existing samples, a half of companies (52.99%) are not financed and are basically start-ups. Or, in other words, they do not find another financing for themselves. About 16.77% of companies just start with angel financing, e.g. Koudailaoshi, Good parents, 1mifudao, Msb365, etc.
Some companies are at the starting stage. First financed companies account for 8.38%, such as Dayijun, Xiaoniuxuetang, etc. Also, companies that have conducted the first round of financing make up 8.98%, and the percentage for companies that have a second financing represent 6.59%. The figure for companies that have completed the third round of financing is 3.89%, and it is 2.40% for companies that have finished the fourth round of financing. The percentage of companies that have completed the fourth round of financing and businesses that do not receive the financing is obviously on the declining trend. That shows the development of online education industry is still in the preliminary stage, only a few companies attract funds after the second round of financing and there are only a few leading enterprises.
II. Features of the investment into online education companies
- Expanding financing scale
In the past seven years from 2007 to 2014, there were most investments from millions to tens of millions Yuan into current companies. In terms of the distribution of companies, K12 is the biggest player, accounting for about 21.9%. However, in the deep term, K12 is also a main field of online education investment.
The investment from millions to tens of millions Yuan is, on the whole, very common. Generally, the financing attracted by a certain company would be reported. But in the first half of 2015, there was little news about the financing of millions Yuan. That is not because the total financing declines. Online education market becomes increasingly bigger and bigger, so if a company has a financing of tens of millions Yuan, it is not shocking just as in the past. For this reason, reports about many corporate financing do not show on media as it is normal to raise money for companies.
In 2014, the investment into online education was about more than ten billion Yuan, and the figure became bigger in 2015. Also, the investment into a single company has become increasingly bigger and bigger. A single company even attracts an unprecedented financing of more than 300-500m Yuan.
- Changed investment wind and diversified companies
From 2007 to 2014, online education was obviously characterized by the bigger player – language learning software. But in those years, there were little news about financing for language companies, because the language learning investment wind has passed as basically, a few companies (e.g. New Oriental, Hjclass, 51Talk, VIP ABC, etc.) has dominated the market.
Another heated segment in online education industry is vocational education, followed by technical service and online language learning. Even though companies in this aspect are rather scattered, their business type tend to be similar – placing focus on contents. About 66% of companies produce live and recorded courses, as well as services in relation to online mentoring. Online education industry, as a whole, is closely connected with content service.
Besides, the financing for companies engaged in K12, vocational education and higher education is on the rise. Even though higher vocational education is a rather closed market due to the problem relevant to the degree, yet its potential is very huge once the delegation of power is put in place. MOOC begins becoming popular in colleges and universities that have started to pour a lot of money to develop MOOCs.
The investment window has shifted toward K12 in recent one or two years as this field becomes extraordinarily popular. But in reality, it is easy to make a fortune in the vocational education industry. K12 is a field testing patience and financial ability. In other words, a company engaged in K12 will face great difficulty in going ahead if without abundant capital. Meanwhile, online K12 education needs sufficient funds and patience in the aspects of developing technologies and contents. A company will not make it, if it ignores or neglects any aspect. So there are many companies in K12, but only a few of them make it. Therefore, that explains why the author often says that online K12 is a trap.
According to the research conducted by China Online Education Research Institute, B2B education information companies are now still the biggest player among B2B and B2C, technical providers and platform companies as the appropriation input into educational information is about 220b Yuan annually. B2G and B2B have always been not valued by the capital, but they have been gradually accepted and even favored by the capital since 2015. Meanwhile, the industrial overlap becomes more frequent, and B2C and B2B interpenetrate each other. For example, some online education companies are engaged in B2C business, but they do not find a profit-making direction and find a revenue model in B2B market.
- Subdivided field
According to the preliminary predict by China Online Education Research Institute, there are about 2500 online education companies in China (excluding institutional companies), most of which are start-ups set up in recent years. The figure will rise to over 9500, if B2B companies and hardware and system integrators in relation to online education included.
The reason includes more online education companies and a wider research scope of China Online Education Research Institute. That is not because the whole online education grows, but because already existing software or information companies begin to gradually shift towards the Internet. For example, there are thousands of B2B education information companies, some of which have operated for more than ten years and generated the revenue of billions of Yuan. These companies have started working on the Internet since 2014. For example, a large company generates the annual income of about 1b Yuan, but it is not mentioned in any research report, just because it is engaged in B2B business. In reality, B2B and B2C are just two business models.
The Internet is an overturning industry and innovation. B2B and B2C companies begin to penetrate each other. For example, the emergence of such taxi-calling APPs as DiDi and others is overturning the taxi industry, which also means that unexpected consequences will appear after the industrial barrier is broken.
- More industrial funds
In 2014, online education investment centered venture capital, while the situation changes in 2015 because the investment fever of a dozens of online education industry funds appears in addition to the VC.
- Part IV – III Analysis on the SWOT of the Online Vocational Education and the Method of Breaking through the Dilemma
- Part V – II Analysis on Investment Strategies of Chinese Online education Companies in 2015
This is a series of articles from Blue Book of China’s Online Education Industry, authored by our partner China Online Education Research Institute (COERI). Each post is a chapter from the blue book.