VC-backed Chinese online tutor Xueba close to bankruptcy

Kailei Zhang, the company's founder, made the appeal in a public letter of apology. Xueba has 10,000 teachers and 3,000 support staff that serve a student user base of 50,000.

AVCJ Research's records show the company received angel funding from Sinovation Ventures in 2013 and a $5 million Series A round from Vertex Ventures in 2014. One year later, Qiming Venture Partners and Trustbridge Partners provided $50 million in Series B funding. This was followed by a $100 million round led by China Merchants Capital and Grand Fight Investment, a PE arm of Chinese financial services group Far East Horizon, in 2017.

Founded in 2013, Xueba started out as a Q&A platform; students would take photos of homework exercises, upload them, and receive assistance. The likes of Yuanfudao and Zuoyebang had similar origins. However, they subsequently expanded into large-class format teaching - first recorded, then live-streamed - while Xueba took the one-to-one tuition route.

Online education providers in China saw a surge in demand after schools were suspended last year in response to COVID-19. The expectation is that growth will remain robust, prompting a surge in investment activity. Yuanfudao raised a $2.2 billion Series G round in October at a valuation of $15.5 billion; Zuoyebang followed with a $1.6 billion Series E extension in December. 

Most recently, TAL Education Group, a leading listed offline tuition provider that is pushing online, raised $3.3 billion, including a $2.3 billion contribution from Silver Lake. It is estimated that Zuoyebang, Yuanfudao, US-listed GSX Techedu, and the online units of TAL and New Oriental Education & Technology together control about 80% of China's large-class K-12 space.

Xueba's problems suggest a stark divergence of fortunes within online education. In his letter, Zhang blamed Xueba's failure on his mismanagement and poor decisions. The company added a small class model - with six students per class - to its one-to-one offering. Zhang said he was in the process of selling this business to refund parents who have paid for one-to-one services when local media highlighted Xueba's liquidity problems. The deal fell through.

“We have not raised a large sum of money in the past three years, and have teetered on the brink of bankruptcy at least five times. After spending so much money, I haven't found a path to growth. I don't know if I will lose my freedom for this, but I am prepared. I don’t think I should sleep here, I should go to prison,” Zhang said.

He promised not to declare bankruptcy until the company has explored all its options.

A typical Xueba one-on-one class costs RMB100 ($15.50). Parents make an upfront payment of RMB10,000 for 100 classes. This is a large sum for the average Chinese family and the suspension of services prompted hundreds of parents to visit Xueba offices demanding refunds. Xueba has said it will provide content and platform access for free to groups that take over the student contracts.

Zhang thanked 51Talk, VIPKid, and TAL for hiring some of Xueba's staff. Caixin reported that TAL was conducting interviews on Xueba premises and looking to secure parents as customers at the same time.

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• Topics
• Greater China
• Consumer
• Technology
• China
• Education
• Qiming Venture Partners
• Trustbridge
• Sinovation Ventures