China online education player Huohua Siwei files for US IPO

The company has raised more than $590 million since its inception in 2016 and was valued at $1.5 billion on closing the third tranche of a Series E round at $150 million in January. TrustBridge Partners was the lead investor and now owns 7.5% of Huohua.

The first two tranches of the Series E - worth $150 million and $100 million - closed in 2020 and were led by KKR and Tencent Holdings, respectively. KKR, which has an 8.5% stake, also co-led the company's $85 million Series D in 2019. It shared top billing with GGV Capital, which owns 8.9%.

 

Sequoia Capital China is the largest external shareholder with 10.5%, according to the prospectus. It led the second tranche of Huohua's Series B in 2018 and re-upped in later rounds, AVCJ Research's records show. IDG Capital and Hike Capital led the first tranche of that round; they own 8.7% and 6.3%.

Lightspeed China Partners has 5.7%, having provided Huohua's Series A in 2016. Other investors include Northern Light Venture Capital, Wu Capital, and video-sharing giant Kuaishou. Northern Light and Wu led a $40 million Series C in 2019, while Kuaishou contributed $30 million as a Series D extension last year.

Huohua is the first online education company in China to develop and offer online small-class foundational learning courses on a large scale, according to China Insights Consultancy (CIC). It is now the largest player in the online small-class space by goss billings and number of students.

The company targets children aged three to 12 years, typically in classes of 4-8. In addition to its flagship mathematics course, Huohua offers Chinese and English language tuition. There is also an artificial intelligence-enabled enhanced option, whereby the pace of the course is tailored to meet the needs of individual students.

There were 370,530 registered students as of March, up from 133,902 a year earlier. Revenue rose from RMB195 million ($30 million) in 2019 to RMB1.17 billion in 2020, and it was up 203% year-on-year at RMB454 million in the first quarter of 2021.

Nevertheless, Huohua remains unprofitable. It posted a net loss of RMB771 million in 2019 and RMB951 million in 2020. Operating costs more than doubled during the period, with most of the money going into sales and marketing expenditure, which rose from RMB235.8 million to RMB798.4 million.

The company's net loss was RMB373 million in the first quarter of 2021, compared to RMB209 million 12 months earlier as sales and marketing spending tripled.

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• Topics
• Greater China
• IPO
• Technology
• China
• Education
• Sequoia Capital
• KKR
• Tencent
• Trustbridge
• GGV Capital
• IDG capital
• Hike Capital
• Lightspeed Venture Partners