Warburg Pincus, Genesis Capital invest in a Chinese online tutor

The private equity firms are betting China’s growing middle class will spend more on educating their children, especially now education online is easily accessible.

Private equity firms Warburg Pincus and Genesis Capital have invested $120 million in Chinese K-12 online tutoring company Zhangmen, betting China’s relatively low penetration rate of private tutorial services will catch up with other developed countries in Asia. 

The D-round of financing raised $120 million. This is the sixth round of financing by the company and the largest financing by a Chinese K-12 (covering kindergarten to 12th grade) personalised online tutoring company in China.

Capital raising by Chinese education companies has been frenzied in recent years with more than Rmb50 billion ($7.66 billion) pouring into Chinese online tutoring start-ups in the first half of 2017, according to internet sector research firm iResearch. 

Through online and mobile apps of Zhangmen, primary and middle school pupils from eight to 18 years old can select teachers who have graduated from Chinese universities such as Tsinghua, Peking University and Fudan, for personalised, one-on-one tutoring sessions.

Zhangmen has 30,000 full time and part-time tutors, and more than 1 million registered students across over 600 cities in China.

“K-12 after-school tutoring is one of the largest, fastest growing and least cyclical consumer markets in China,” said Michael Chen, a managing director at Warburg Pincus.

China has a relatively low penetration rate of private tutorial services compared with other developed countries in Asia. As of the end of last year, 8.4 out of 100 students in China enrolled in after-school tutorials, while Japanese and South Korean private tutorial firms serve 35.2 and 60.5 out of every 100 regular school students respectively.

Warburg Pincus expects the personalized one-on-one tutoring market to reach over Rmb400 billion ($60 billion) with an annual growth rate of 20% in 2023.

UBS Securities suggests the value of the K-12 private tutorial market – referring to tutorials for students aged 3 to 18 – could more than double to Rmb1.1 trillion ($163 billion) by 2021 from Rmb497 billion in 2016.

With strong macro trends of rising spending and increasing online penetration, we expect the online market to capture at least 10% of the overall after-school tutoring market in 2023.

Zhangmen generated revenue of over Rmb1 billion in 2017.

¬ Haymarket Media Limited. All rights reserved.