The 2020 China Edtech Industry: What Happened And What To Expect

The 2020 China Edtech Industry: What Happened And What To Expect

Trends in Online Education of China

Blue Elephant Capital expects to see the following trends in the education market in the years to come:

1. OMO

In late January 2021, when several hundred-thousands offline education institutions were forced to close due to Covid-19, the concept of online-merges-offline (OMO) became one of the handful of solutions for the founders. By replicating offline courses online and persuading paid customers to accept a discount course package, it is estimated that over 60% of institutions managed to keep their business running, even though the transition from online to the offline operation had been largely inefficient.

Covid-19's trauma, along with the expectation that the disease might co-exist with people for an extended amount of time, urged education institutions to redesign their business model and rethink their organizational strategy. We observed that the development of online and offline versions of course products, the integration of more edtech tools and data service in the product, and the promotion of online collaboration within the company had been the new norm for online education companies post-Covid-19 China.

SaaS and solution providers in the industry finished the year with record-high performance. Online classroom SaaS (EEO), PaaS (POLYV), and WeChat-based streaming tool (Xiao'e Know) all received large-size funding. A similar flourish happened for the solution providers like Aixuexi and TAL Education's Magic School. They offer live-streamed courses and technology-facilitated services to institutions in the small town and rural market.

2. Small town and rural market

“下沉市场,” literally translated as the “sinking market,” refers to small-town and rural markets, where over 70% of the Chinese population lives in. Apart from 49 first and second-tier cities, the rest of China can be included in this realm, where people earn less money than in big cities and prefer more cost-effective products.

Regarding the supply of education products and services, this batch of edtech companies has put most efforts in the 1st and 2nd tier cities. The parents and students in these cities obviously have higher purchasing power and pressure to compete. However, with the prevalence of more cost-effective tutoring products, we have seen an increasing number of edtech companies trying to enter those untapped regions of marginal markets. Education content providers (e.g. Lele Academy, backed by Owl Ventures) and regional online tutoring institutions (e.g. YKT100) have attracted the most attention.

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3. Vocational education

Vocational education has been a highlight for both the government and the market throughout the year. The government brought out several plans in 2019 and 2020 to promote the development of technical schools and encouraged collaboration between corporations and schools to improve graduates' employment rate.

The vocational training market also heated up in 2020. Traditional players in civil-service examination and other career-related exam-preparation businesses like Zhonggong and Fenbi Education have seen steady growth in this year of extreme unpredictability. Companies focusing on IT and business upskilling, such as Chuanzhi Education, Terena (NASDAQ: TEDU), and Sanjieke (backed by Owl Ventures), also benefit from Covid-19 due to the increased demand for upskilling. We've also observed some corporate learning companies showing up in the market and expect them to grow in the years to come.

4. IPO

The leaders of edtech companies, mostly established in 2012-2014, have started their IPO journey. In 2019 and 2020, we have seen several renowned edtech companies landing on NYSE and NASDAQ, such as Genshuixue (NYSE: GSX), Youdao (NYSE: DAO), iHuman(NYSE: IH), and 17 Education (NASDAQ: YQ). HK stock market and mainland stock market also became destinations for companies like Koolearn (HK: 01797) and Chuanzhi Education (SZ: 003032).

Behind this batch of the online education giants are a series of renowned VCs and PEs across the globe. The investors have a clear demand to exit through IPO, while the companies also need more funding sources from the secondary market. In the coming year, the edtech IPO watchlist includes (but not limited to) Yuanfudao, Zuoyebang, Zhangmen Education, Spark Education, Codemao, and Lele Academy.

About the Author
Author: Joey Jiao
Joey Jiao is a part of Blue Elephant Capital, China’s first pure-play education and edtech investor. Founded in 2015, it has raised six funds and completed seed and angel round investment in 90+ edtech companies.
He has been observing and working in the Edtech industry in China for over three years. He has a bachelor degree from UCLA and a Master degree from Harvard Graduate School of Education. He is always passionate about bridging the information and opportunity gaps between China and the world in the education industry.

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