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China's Yuanfudao hits record valuation with $2.2b round

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Yuanfudao, a Chinese education start-up that targets the K-12 segment, has raised $2.2 billion in Series G funding at a valuation of $15.5 billion, nearly double the valuation of its previous round, which closed in April.

The Series G comprised two tranches, the first led by Tencent Holdings and the second by DST Global. Other investors include Hillhouse Capital, Boyu Capital, IDG Capital, GIC Private, Temasek Holdings, Trustbridge Partners, CPE, DCP Capital Partners, Ocean Link, Greenwoods Investment, and Danhe Capital. The latter was founded by Yidan Chen, one of Tencent's five co-founders.

Yuanfudao claims to be the most valuable education start-up globally, the first time a Chinese company has achieved this distinction.

Hillhouse Capital led Yuanfudao's $1 billion Series F at a valuation of $7.8 billion. This followed a $300 million round in 2019 led by Tencent at a valuation in excess of $3 billion. Yuanfudao became China's first online education unicorn in 2017 on closing a $120 million round led by Warburg Pincus.

Founded in 2012 by former NetEase executive Yong Li, the company's core product is a program of online courses aimed at elementary and middle school students. It added a pre-school English-learning program in 2017. About 3.7 million students - all paying the standard rates - use the core product, making Yuanfudao the largest online education company in China by users.

The company also provides databases of test exams and customized practice papers for self-study. Students can use an app to source answers to study questions and even upload problems they are having difficulty with so that teachers can respond with video explanations. A similar system is used to check simple math problems for junior primary students.

Online education providers in China have seen a surge in demand in response after schools were suspended earlier in the year in response to the coronavirus outbreak and authorities encouraged social distancing. In early February, Yuanfudao held its first mass-participation free class. Such was the level of interest – it attracted five million users – that the system is said to have crashed.

Yuanfudao claims to have provided free live courses to more than 38 million primary and middle school students during the pandemic. In March, the company said it would create 10,000 jobs nationwide and another 5,000 in Wuhan to support the resumption of work.

In addition to its online presence, Yuanfudao has built out a sizeable offline footprint. It is headquartered in Beijing and has teaching and research centers in 11 other cities. Total headcount is 30,000.

According to AVCJ Research's records, the company received a Series A round from IDG in 2012, and a $7 million Series B led by Matrix Partners China the following year. In July 2014, Matrix and IDG returned with a $15 million Series C, while CMC Group and New Horizon Capital co-led a $60 million Series D round in 2015. Tencent committed $40 million for a minority stake in 2016.

Other recent deals in China's education space include Huohua Siwei, an online platform specializing in mathematics and science, raising $100 million in the second tranche of the Series E round. Meanwhile, English language education platform Palfish, also known as Banyu, has raised a $120 million Series C round.

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