In 1993 the 'Several Opinions on Further Strengthening and Improving Moral Education in Schools' policy was released by the ministry – it was the first time China used the concept of quality education.
Fast forward another 13 years. In June 2006, the newly revised Compulsory Education Law was promulgated, and quality education was mentioned in the law for the first time. As of now, quality education has become a legal norm that the education sector and the whole society must abide by.
The road of the progress of quality education has been long and bumpy. Over the years quality education has been related to topics such as niche, extensive, scattered, not important, etc. In the past, the development of the quality education industry was limited by factors such as the number of users, teachers, and national consumption. What's more, with the pressure of grades and academic studies, subject tutoring has developed rapidly, leaving students with very limited time for other activities.
In 2013, the emergence of mobile Internet and the development of AI technologies such as live broadcasting and voice recognition gradually changed the financing situation. From the perspective of the quality education track financing alone, since 2013, financing transactions have been rising with rapid development.
Several online quality subdivision track companies emerged in 2015, such as VIP Peilian (VIP陪练), online art education companies Meishubao and Hualala Kids’ Art (画啦啦), children’s STEAM/programming education firms such as Codemao, etc. breaking the bottleneck of large-scale quality education operations. Then, around 2018, more sub-sectors were created, with mathematical thinking companies such as Sparkling education (火花思维) and VIP Think(豌豆思维), etc.
Innovative business models, technological support, favorable policies, and changes in parents' educational concepts made the track rise. It has been 35 years since quality education was first proposed, and the industry is waiting for the emergence of "unicorns" and to enter the next stage of development.
Primary market performance of quality education track in 2019
According to EqualOcean’s analysis, 112 quality education companies disclosed their financings in 2019 – this is a slight decline from the year before. However, online quality education companies are still receiving attention, and a large number of funds are coming in, all probing for the next educational unicorn. In an article published earlier by EqualOcean, we saw that, amid the decreased number of financings, STEAM surpasses K12 education, which shows the interest of the investors in the sector.
As we can see from the table above, online children's programming, online art and online mathematical thinking have performed very well. The millions of Yuan of financing transactions in quality education for 2019 are basically concentrated in the above several sub-sectors. Among them, Spark education, Walnut education, Hexiaoxiang, VIP Think and other enterprises have been funded more than twice a year by huge investors.
However, from the perspective of financing rounds and revenue scale, the overall development of the quality education track is still in its early stages. The average single financing amount for the quality education track in 2019 was about CNY 37 million, and the investment before the A round accounts for nearly 80%. Funding in the middle and late stages is basically concentrated in rounds B and C.
In spite of the great attention and the flow of capital, quality education, especially online quality education, is still in its early stages of development.
Take mathematical/critical thinking as an example. In 2019, there were four financing events of more than CNY 100 million in this sub-sector. The enterprises were VIP Think and Spark education. Both of them completed more than CNY 2 billion in financing in the year. The competition pattern of mathematical thinking circuit is relatively clear, and the segment head companies have initially achieved large-scale expansion. But it is worth noting that mathematical thinking still belongs to a relatively new track, and most enterprises have been established for about three years only.
Children's programming, which once took quality education to its peak, is also seeing a decline in financing deals this year. Compared with several other fields, children's programming has developed over a much longer time period. The revenue performance of several online children's programming agencies has performed well. The next stage of children's programming will have to be to increase the renewal rate, control the cost of customer acquisition and increase profits.
Online art education performed quite well last year. Innovative online education companies such as Hualala Kids’ Art and MeiShuBao have opened up the growth path for the industry, but the dependence on offline experience cannot yet be completely left behind. Because of its own characteristics, art education relies on offline teaching, which leads to a slower expansion rate. On the other hand, industry barriers are relatively small. In 2018, several online music education companies continued to raise funds. Through the upgrade of technical means in the field of music, some of the teaching processes and teaching feedback have been standardized. However, the performance of the music field in 2019 was mediocre. In fact, whether it is music or fine arts, the standardization of teacher system and teaching system is still a major problem in the sub-sector.
Although some companies have begun to take shape, it will take some time to grow a unicorn company. Not only must we respond to market conditions and challenges, but these business models need to be polished.
In addition to business development, teachers are a huge problem in the quality education track. Teachers in quality education projects have a large gap and longer training time. In order to last long in the education industry, a unicorn company must invest in areas such as research, content and qualified teachers.
From the perspective of quality education entering the schools, although the education policies have made the development of 2B businesses easy, public schools are extremely fragmented, the purchase price and transaction volume are low, and it is difficult for the 2B businesses to perform and scale – hence the growth rate of quality education institutions is low.
Judging from the financing situation of the top companies, quality education unicorns will emerge within a few years. However, what is needed for quality education is not one or a few "unicorns," but a benchmarking enterprise that can really bring a strong business model.