Tencent Leads US$100 Series E2 Round In Chinese Edtech Startup Huohua

With the latest capital injection, Huohua’s total funding stands at $440 million, with $280 million raised this year alone

Chinese edtech startup Huohua Siwei has secured US$100 million in its second tranche of Series E financing led by Tencent Investment, a new investor, Huohua CEO Luo Jian announced in an internal letter on Monday.

The round also saw participation from two other new investors—The Carlyle Group, a U.S.-based private equity and alternative asset management firm, and Tencent-backed edtech startup (China’s most valuable) Yuanfudao, the letter noted.

China’s Light Source Capital acted as the exclusive investment consultant, according to a report by 36Kr.

The fresh investment follows on the heels of its $150 million Series E1 round raised less than 2 months ago, which saw led by existing backer and global investment leader KKR & Co. The round had also attracted other well industry names including GGV Capital, GSR Ventures, Longfor Capital, Sequoia Capital China, and IDG Capital.

Earlier this year, the startup had also secured an investment of $30 million from Chinese short video platform and TikTok competitor Kuaishou, which is also backed by Tencent, in order to enhance its AI and live-streaming capabilities, according to a report by KrASIA.

With the latest capital injection, Huohua’s total capital haul stands at $440 million, with its Series E round accounting for $250 million, the internal company letter noted.

Founded in 2017, Beijing-headquartered Huohua’s online platform specializes in AI-powered interactive courses in mathematics, science, and critical thinking for the K12 segment.

In its effort to expand its product offering to include multidisciplinary courses, the startup recently launched an AI enlightenment course in July and an AI-driven english language course in August this year, in addition to its Chineses literature and language course launched last year.

Tencent Investment Managing Director Haiyang Yu said in the funding announcement on WeChat, “The increasing efforts in AI-enabled, multi-disciplinary courses can provide more advanced education services to students.”

From four students in its first class launched in March 2018, the startup’s online platform now has over 250,000 students with more than 85,000 daily active users, Jian noted in the letter, adding that the startup’s team has also expanded to 6,500 employees.

According to a report by CX Tech, Jian had claimed in August that the startup has a subscription renewal rate of 80% and generates approximately $29 million in monthly revenue. He wrote in the letter that 85% of new users on the platform come through referrals and organic traffic, while Huohua’s enrollment rate has increased by 95% this year.

While edtech has existed in the market for years, the global pandemic that has affected 978.5 learners worldwide has catapulted the sector to the forefront. With schools and universities closed, students, parents and teachers had to resort to online modes of education.

Moreover, the entire educational sector now stands to be redefined and reinvented by the adoption of edtech, where edtech startups are expected to shape a future of education that is likely to include hybrid classrooms and AR and VR solutions.

The increasing prominence and importance of edtech has also captured the attention of global investors, with edtech startups bagging $4.1 billion in venture funding worldwide as of August 10, this year, the highest amount raised in the same duration since 2015.

However, the number of deals declined to 279, the lowest during the same duration since 2015, indicating that deal sizes were significantly higher this year.

Huohua backer Yuanfudao, for instance, raised $1 billion in its Series G funding round in March this year, one of the biggest deals so far, and is set to raise another $1.2 billion from existing investors Tencent, Hillhouse Capital and Boyu Capital, which would push its valuation to $13 billion from the current $7.8 billion.

It is important to note, however, that although China has the largest number of Internet users in the world, with over 854 million people connected to the internet, there is a major disparity in the adoption of edtech among the rich and the poor.

In 2018, between 56 million and 80 million reported lacking either an internet connection or a web-enabled device, while another 480 million did not go online for lack of technical know-how among other reasons. Moreover, spotty internet connection outside big cities have reportedly forced children to resort to extreme measures like hiking for hours to mountaintops to receive signals.

These disparities are, however, expected to decrease with the growth of the edtech market and adoption of inclusive technologies and strategies. According to a recent report by Holon IQ that has analyzed the impact of COVID-19 on the sector, the global edtech market is expected to reach $404 billion by 2025, representing 2.5x growth between 2019 and 2025.

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