Tighter regulation in China's online education sector has piqued the interest of international investors.
On Monday, KKR and GGV Capital led a $85 million Series D fundraising in mathematical thinking training platform Huohua.
Existing investors including Sequoia, IDG Capital, Nothern Light Venture Capital, Lightspeed China Partners, Longfor Capital and GSR Ventures all participated in the round.
It is only five months since Huohua completed its $40 million Series C fundraising in March. “KKR rushed into this round of fundraising,” one person close to the company told FinanceAsia. “The project passed internal controls within two months.”
Apart from KKR, Softbank is also looking for investment opportunities in Chinese education. The group has its eyes on NetEase Youdao’s online courses, according to a source familiar with the matter.
Unlike Huohua which focuses on maths training, NetEase Youdao’s online courses provide prerecorded classes for exam-oriented education. But both of them are focused on the Kindergarten to twelfth grade (K12) education sub-sector.
International investors are particularly attracted to this vertical sector of Chinese education. Huohua is the leading player in the maths training field, a market which is expected to grow more than 90% year-on-year and reach Rmb2.7 billion ($378 million) by the end of 2019, according to a report from a Shanghai-based research firm.
Investment in online K12 education grew 51.8% in 2017, but that momentum has slowed down and the growth rate slipped to 48.4% in 2018 and 46.4% this year, according to a report from Iresearch.
Under fierce competition, Chinese online education has developed many vertical sectors. As the number of Chinese middle-class families has grown, people have demanded more from their children's education; everything from exam-oriented training to those that cultivate interests. These needs are likely to create a unicorn in each vertical and improve online education efficiencies.
But ever since China passed new regulations for online education in July, smaller education platforms have faced more challenges to survive as resources are drawn towards the top players in the market.
