Last June, JMDedu has analyzed the dazzling growth of capital injection in kids’ coding education track despite a deep-freeze set in the overall industry. Given the policy support and rigid demand stimulated by the reform of new Gaokao (College Entrance Examination), kids’ coding education is expected to become one of the most popular sector favored by capital in the primary market, surpassing kids’ English learning and thinking training.

However, under the tightening of monetary policy laid out in 2019, the overall amount of investment deals in this track has been halved compared to 2018, along with scandals swirling around significant kids’ programming firms. Due to capital rationality, it seems that survival has become the current keyword for the players in this track with three elements: funds, channel, and business model.

Less investment poured into the kids’ coding education track

According to FirstInsight (WeChat Account: ieduclub), the number of deals in kids’ programming witnessed a slump with 20 deals closed in 2019 and 16 companies receiving funds while in 2018 34 investment institutions have injected capital into this track with 41 deals closed.

When looking at those top players, Codemao (编程猫) targeting online programming education announced its Series C round with 400 million yuan in November 2019, regarded as the largest funding amount in this track to date. Xiaomawang (小码王), Hetao101(核桃编程) and XiguaCity(西瓜创客) secured B round with more than 100 million yuan. And Jikestar (极客晨星) announced in September that it had raised nearly 100 million yuan in an A+ round.

Among the companies that have been continuously invested in 2018 and 2019, only WeCode and Codeplanet still remained in the angel round, the rest of the start-ups all completed their B or even C round of financing. So Matthew effect is quite obvious here when mature enterprises are more favored by capital.

Therefore, the capital’s rationality poses threat to start-ups who have not received funding yet. By the end of 2019, scandals and incidents were revealed such as Miao Code’s acquisition by 37 Interactive Entertainment, Tarena’s constant delay of submitting the financial statements, XiguaCity’s layoffs and Knowbox’s disbandment of the team for coding business.

More business models covering online and offline need to be explored

If we compare the three drivers including funds, channel and business model to a wagon, the fund is just regarded as the main body and the other two are the wheels. Despite a lack of financing, companies still have an opportunity to better their storytelling by exploring sustainable channels and business models. 

FirstInsight once pointed out that capitals usually attach more importance to a company’s business model and operating channels when making the investment decision.

Among the 7 institutions obtaining financing in both 2018 and 2019, Codemao attempts to adopt the model of collaboration connecting online teaching with offline branches, as well as the franchise store. Plus, with the development of the Codemao’s curriculum and policy support, penetrating into public schools also becomes an important business for the company. And it is reported that it has already teamed up with more than 11,599 schools and educational institutions across China.

As for the other 6 players, Codeplanet has a similar business model with Codemao by targeting children in kindergarten. XiguaCity and Hetao101 focus on online programming education, whereas Jikestar and Xiaomawang have started their business from offline teaching and just tapped into online business from the beginning of 2018. When a single model cannot bring more profits, many institutions begin to seek new paths combing online and offline.

Some listed companies vie for the kids’ coding education market shares through investment. For example, Shengtong (002599) invested Codemao and cooperated with its subsidiarity RoboRobo to launch “robot+programming” courses. Meanwhile, Shengtong also acquired the robotic hardware provide, ZMRobo. But as of August in 2019, Shengtong has sold all the shares of the Codemao. NetEase and TAL have brought in CodeCombat and CodeMonkey through cooperation and acquisition, aiming to occupy more market space in a short future after product localization.

In addition, companies also explore the approach of AI teaching based on the user data they have accumulated. The AI teaching system will schedule courses with different level to individual students according to one’s learning situation. And teachers can participate in students’ learning process in real-time like grading assignment and Q&A. The advantage of dual-teacher is hiring fewer teachers to reduce the cost in this aspect. But at present, this visible cost reduction still remains at the theoretical stage.

During the past few years, policy support and capital injection both contribute to the boom of coding education for kids. But this track will be challenged by in-depth refinement of the products and content in the short future. JMDedu believes that there is still a gap between Chinese products and well-established foreign products in terms of quality content.

Players have to survive amid the capital winter by improving self-efficacy

For online kid programming business, it is always difficult to address the issue of high customer acquisition costs. Moreover, coding education is actually not positioned as a rigid demand, thereby acquiring a short cycle of users. It is no longer an efficient approach for coding companies who are facing difficulty on self-support and monetization to burn a staggering amount of money for customer acquisition at this stage.

2019 is marked to be a significant year for kids’ coding education industry. When investors started to be more rational and the to-venture-capital model (instead of to business or customer) no longer works, the industry is suffered from a continuously decline in 2019 and has seen many companies close down.

However, if we reflect on the nature of education industry, 2019 can also be regarded as a golden era as capital chill urges companies to focus on their education content and product. Only by improving products and upgrading the design of teaching processes to form a healthy business model can those kids’ coding education players achieve a sustainable growth rather than just a flash in the pan.