China's Zuoyebang gets $1.6b Series E extension
Zuoyebang, which claims to be China’s largest online education company, has secured $1.6 billion in an extended Series E funding round that features Alibaba Group as a new investor.
Several existing backers also took part, including FountainVest Partners, Tiger Global Management, SoftBank Vision Fund I, and Sequoia Capital China. It comes six months after a $750 million Series E led by FountainVest and Tiger Global.
The deal also represents a continuation of sizeable fundraising activity in the K-12 space, even as subsidy programs mean the leading players have yet to become profitable. In October, Yuanfudao closed a $2.2 billion Series G round at a valuation of $15.5 billion, double the valuation of its previous round six months earlier. Tencent Holdings is a substantial investor in the company.
It is estimated that Zuoyebang, Yuanfudao, US-listed GSX Techedu, and the online units of educational giants New Oriental Education & Technology and TAL Education Group together control about 80% of China's large-class K-12 space.
Zuoyebang was launched in 2014 on Baidu's Q&A site Baidu Zhidao. It became an independent entity the following year as part of an initiative to open certain businesses to external funding. The core business is an app-based service that enables students to seek answers to academic problems. They search online tests by taking snapshots of their textbooks or submit questions to teachers online. The company subsequently expanded into areas such as live broadcast classes.
Total daily active users and monthly active users exceed 50 million and 170 million, respectively, while the Zuoyebang app has been installed in more than 800 million devices. There are 12 million paying members, more than any other online education platform in China. For the year to autumn, 10 million people had participated in paid courses, with 2.2 million of those paying standard – or non-discounted – rates. Over 70% of the 2.2 million come from tier-three cities and below.
The company claims the number of participants in its live broadcast classes represents an industry record. It further claims that its customer acquisition costs are less than half the industry average.
Zuoyebang’s education super app is based on the world’s largest question bank with more than 300 million entries. Other services – from live lessons to homework correction – are layered on top. Recent innovations include Cocos-courseware, an artificial intelligence-assisted platform that pairs students with teachers via live streaming. It uses gesture recognition, facial expression recognition, and voice recognition to track how primary school students are engaging with information.
The company has also released its own smart devices comprising a camera, text recognition software, and a printer. The Meow Meow Machine, or Paperang, enables students to photograph, print and categorize homework mistakes, leading to improved learning outcomes. The product ships globally and has 7.5 million registered users.
Jianbin Hou, Zuoyebang’s founder and CEO, said the company would use the proceeds from the latest round to invest in core education and technology capabilities and service offerings, enter new product categories, and expand the reach of its business.
During the COVID-19 pandemic, when schools in China were temporarily closed, Zuoyebang offered free live classes. More than 33 million students took part over the course of five weeks. Of the 10.7 million students that sat China’s national college entrance examination in 2020, approximately eight million had taken advantage of Zuoyebang’s COVID-19 support program, according to a statement.
The company received $25 million in Series A funding from Sequoia and Legend Capital not long after it spun out from Baidu. This was followed in 2016 by a Series B round of $60 million led by GGV Capital and Xiang He Capital. The Series C, which closed at $150 million in 2017, was led by H Capital. In 2018, Coatue Management led a $350 million Series D, which was followed by a $500 extension from Softbank Vision Fund. Other investors include Qatar Investment Authority and Tiantu Capital.
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