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Caixin

Online educator Yuanfudao raises $2.2bn as valuation doubles

One of China's 'most innovative companies' gears up for fierce cash-burning war

Yuanfudao accumulated 400 million users as of January 2020.   © AP

China's online tutoring startup Yuanfudao said it raised $2.2 billion in two funding rounds that gave the Beijing-based company a valuation of $15.5 billion, the highest among global education technology upstarts.

The first round of investment was led by social media giant Tencent Holdings with participation from Hillhouse Capital, Boyu Capital and IDG Capital. The second round was led by DST Global, according to Yuanfudao.

The company said it will invest the money to develop its curriculum and expand its online educational service amid a remote learning boom under the pandemic. The 8-year-old company's new valuation nearly doubled from a funding round seven months ago. In March, Yuanfudao raised $1 billion.

Online education service providers have become investors' darlings around the world as the COVID-19 outbreak forced schools to close and more students to study from home. In China, online education startups are racing for new capital to fund cutthroat battles for market share.

In June, major rival Zuoyebang announced completion of a $750 million fundraising from FountainVest Partners, Tiger Global, Qatar Investment Authority and others. The company was valued at $10 billion.

Focusing on K-12 tutoring, Yuanfudao has developed a wide range of mobile apps that provide students with live tutoring and homework support. The company had 400 million users as of January 2020 and was named by Forbes as one of China's most innovative companies in 2019.

China's online education market is projected to grow by 12% to $61.5 billion this year with a major boost from the COVID-19 pandemic, according to Caixin Global Intelligence. Despite all the money flowing in, online education enterprises in China are struggling to make a profit as they spend heavily on marketing and engage in price wars to secure market share.

Industry analysts estimate that China's major online tutoring sites spent more than 4 billion yuan in marketing in summer 2019 to attract new students. This year's spending could have surpassed that by several billion yuan, they said.

Analysts said the industry will continue fighting a fierce cash-burning war for a while and the race to the bottom will force a consolidation of the industry.

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Read also the original story.

Caixinglobal.com is the English-language online news portal of Chinese financial and business news media group Caixin. Nikkei recently agreed with the company to exchange articles in English.

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