Beijing, Dec.5(JMDedu) -- Despite a cooling domestic economy and lingering trade-war jitters, Chinese EdTech entrepreneurs remain optimistic about the red-hot industry, attempting to dispel the notion that a deep-freeze has set in.
Speaking at the Global Education Technology (GET) conference held in Beijing on Nov. 25, Mei Chujiu, the founder and CEO of conference organizer JMDedu, dismissed concerns that “winter” has arrived:
“It’s true there has been a thinning out of education technology companies (in China),” Mei said, “But it is a healthy trend, following the market cycle. There were too many firms founded on a to-venture-capital model (instead of to business or customer).”
The remarks come against a backdrop of worsening economic outlook in China. In Q3, Year-on-Year GDP growth slowed to its lowest point in 27 years to 6.0%, down from 6.5% in the same period 2018 and behind full-year 2019 forecast of 6.2%. Overall venture capital investment, the lifeblood of China’s startups, has declined each quarter year-on-year through Q3 2019 according to KPMG’s Venture Pulse Report.
EdTech investment has not been immune to the chill. Through the 1H of 2019 JMDedu found 184 financing deals for CN Ed Tech firms amounting to USD $2.6 Billion (representing more than 50% of all ed tech investments globally). Although that dollar value is up 18% vs. the same period in 2018, the amount of financing deals has declined by roughly half, indicating a concentration of mega funding rounds to well-established players like VIPKID, Knowbox, and Bright Scholar, each of which closed rounds of more than $100 Million in Q3.
Bai Jian, the President of PolyV, one of China’s largest to-business video-streaming platforms, discounts the “winter” designation, instead highlighting the continued growth potential of the education sector in China fueled by the introduction of breakthrough technologies like 5G, AI, and video streaming:
“Just look at the rise of live-streaming and short-video in the education space,” Bai said during a Keynote presentation at GET 2019. With the emergence of short-video heavyweights such as Douyin (TikTok) and Kuaishou, China’s short-video space revenues have ballooned more than 7x year-on-year to $6.8 in 2018 according to a report by China Netcasting Services Association. “The numbers don't jive with winter narrative, we still see massive opportunity, especially outside of first and second-tier cities.”
Despite the rosy overtones, one consequence of the funding shortfall is a dearth of capital for early-stage firms looking to get off the ground.
“Investors are definitely looking more closely now,” said Sam Liao, a Beijing-based consultant for early-stage education technology companies. “It’s not like it was a few years back when anyone could seed funding with simply with a PPT. Those days have ended.”
The chill has extended to well-established firms looking to add to their coffers. Rumors swirled before China’s largest EdTech Unicorn VIPKID closed its latest, $100 Million+ Series E with Tencent in October that the deal was scrapped before it got off the ground. Although the deal came through, VIPKID was in the news again on Nov 29 when it went public with a $14K reward for information about individuals responsible for spreading on social media “fake rumors” about financial distress and alleged imminent bankruptcy.
While these negative signals seem to proliferate and gain pace, the overall trajectory of the EdTech space in China remains positive, with the mood of its participants seemingly not dampened in the least:
“The world has much to learn from China's education rise.” Mei Chujiu of JMDedu said. “In terms of online learning and introducing technology, we have much to be proud of.”