
Deal focus: Gaosi Education stresses its B2B credentials
As China's mainstream online tuition players battle for the hearts, minds and wallets of end users, Gaosi Education found a niche targeting the B2B market. It recently raised $140 million to accelerate expansion
China’s online education space is crowded. It is populated by more than 100 players and received $6.4 billion PE and VC investment between 2013 and June 2018, according to Deloitte. As such, some argue there is little hope for new entrants as they compete with established players that can draw on ever larger rounds of funding.
Chinese GP Loyal Valley Capital responded by avoiding the main battlefield. Instead of chasing those established giants that primarily sell directly to K12 students (or the parents of these students), it focused on the B2B segment – specifically Gaosi Education, which supplies online teaching platforms to after-school tutoring companies. The company recently raised a $140 million Series D round led by Warburg Pincus, described as the largest-ever funding round in China’s “K12-to-B” education space.
Loyal Valley’s involvement with the company began in 2017, when it participated in a RMB550 million ($81 million) Series C round. The firm was joined by AlphaX Partners, CMC Capital Partners, and Sinovation Ventures.
“We chose Gaosi because it has embarked on a totally different path from other companies in the online education space that focus on the end user. We still like the model of growing quickly through offline expansion. But we think Gaosi’s way of supporting after-school tutoring institutions through its open source technology and platform is a sensible, asset-light means of achieving this goal,” says Jay Gu, a managing director at Loyal Valley.
The company’s main product is Aixuexi, a subscription-based online platform that offers access to materials including teaching plans, textbooks, and teacher training programs. The company covers seven subjects – mathematics, English, Chinese, physics, chemistry, biology, and history – and claims to have collaborated with over 5,000 Chinese educational institutions in 1,600 counties, serving more than 12 million students.
Gaosi has ambitions to lure more customers by providing diversified online services. Two new offerings have been rolled out in the past four years: Aitifen which helps clients deliver one-on-one video classes; and Aijianzi, which specializes in customized livestream lessons.
The new funding will go towards R&D, introducing additional S2B2C services, and creating content. From Loyal Valley’s perspective, Gaosi will remain on the right track provided it retains two key differentiating characteristics: K12-to-B and being open source.
“You could think of Gaosi as like the Android operating system, which can be used on different brands of mobile phone. While the online services offered by the likes of TAL Education are mostly only available to their own offline institutions – like iPhone’s IOS system – Gaosi is compatible with any institution. This means it is favored by institutions that would like to win customers from the established players, but usually don’t have the resources to develop their own online teaching systems,” Gu explains.
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