VC-backed Chinese online education business files for US IPO

Shunwei Capital is the largest institutional shareholder with a 20.2% stake. H Capital, CITIC Securities, Temasek Holdings and Walden Investment own 12.3%, 11.6%, 11.2% and 6.4%, respectively. Other investors include Xiaoping Xu, founder of ZhenFund, who holds a 5.8% interest in a personal capacity, according to the prospectus.

Formerly known as 17Zuoye, the company's most recent funding round came in 2017, when Temasek led a $250 million Series E, AVCJ Research's records show.

Xu provided seed capital in 2012 and Shunwei first got involved in the Series A round a year later. The same two investors took part in the $10 million Series B and Tiger Global Management and H Capital came into a $20 million Series C in 2014. Shunwei led a $100 million Series D round in 2015.

17 Education started building its smart in-school classroom solution, comprising homework and academic assessment products, in 2012. The solution is now used in more than 70,000 K-12 establishments across 360 cities. Users to date include 900,000 teachers, 54.3 million students, and 45.2 million parents. Monthly average users exceed that of the next top four players combined, according to Frost & Sullivan.

The in-school part of the product offering is available free-of-charge, with revenue generated from the after-school tuition element. It expanded into large-class tuition in 2017 and that segment has grown steadily as a portion of overall revenue, reaching 93% in the first nine months of 2020. 17 Education claims to be the fifth-largest player in this area in China.

The company also has a large library of proprietary content, including homework questions, examination test papers, teaching guides and in-class materials, self-directed learning videos, and digital picture books.  

Revenue came to RMB406 million ($61.9 million) in 2019, up from RMB310 million in 2018. For the first three quarters of 2020, it was RMB807 million. Meanwhile, net losses amounted to RMB656 million in 2018, RMB963 million in 2019, and RMB975 million in the first nine months of 2020. The company also had negative net cash flow from operating activities in each of these periods.

After-school tuition represents a much larger potential market than in-school classroom services. A total of 30.3 million Chinese students were enrolled in online K-12 after-school tuition programs last year and that number is expected to hit 95.7 million in 2024. Over the same period, gross billings are projected to grow from RMB67 billion to RMB407.2 billion.

The large-class course format is the most widely used in China's after-school tuition market, accounting for approximately 88% of enrollments and 54.2% of gross billings in 2019.

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• Topics
• Greater China
• Expansion
• Technology
• IPO
• China
• Education
• Shunwei Capital Partners
• CITIC Securities
• Temasek Holdings
• Walden International