Yuanfudao Near Completing New Funding Round

Chinese edtech unicorn Yuanfudao, which is supported by tech conglomerate Tencent Holdings Ltd. is reportedly near closing a new fundraising round that would bring its value up by about $7.5 billion.

Sources familiar with the matter stated on Friday that the financing round started before the Lunar New Year holiday. The online tutoring platform initially sought to raise as much as $1 billion in January.

Discussions are still ongoing, and the investment amount has not been finalized, the sources added.

Tencent led the latest round along with private equity firm Hillhouse Capital Group. The Shenzhen-based group is an early investor in Yuanfudao, while Hillhouse has been in regular contact with the startup before the fundraising.

However, a spokeswoman for the company said the information concerning the valuation and timing of the transaction was not accurate, although she did not go into detail. Tencent and Hillhouse have not responded to a request for a comment. 

The online education provider looks to complete the round sooner and prefer not to spend time attracting more investors. New ones would have needed more time to perform offline due diligence because of the coronavirus pandemic, according to the sources.

Yuanfudao’s was valued at $3 billion during its prior funding round in 2018. It is also supported by private equity firms Warburg Pincus LLC and Matrix Partners China, as well as venture capital group IDG Capital.   

Yuanfudao Likely to Benefit from Increased Investor Interest

The talks make Yuanfudao an unexpected encouraging place of activity in the deal-making industry, which has significantly weakened as the outbreak cancelled most travel and business meetings       

The edtech startup, which offers online K-12 subjects and courses for adult students, puts it in one of the few businesses with increased investor interest as the fast-spreading coronavirus and school shutdowns left students in China with no choice but to attend classes via the internet.

Online Chinese learning apps have experienced a steep climb in downloads and usage amid the global health crisis. The overall sector’s popularity has also grown further, as the virus spreads to 178 countries, forcing schools around the world to close. 

Data from a mobile app performance tracker showed the Tencent-backed edtech platform, who claims it has 400 million users, rose to the top spot in in-app purchases on the Chinese app store’s education category between January and mid-March. 

DingTalk, an online collaboration tool owned by online retail giant Alibaba Group Holding Ltd., became the most-downloaded free app at the domestic app store over the last month.

Analysts have also said in February that education companies are likely to gain from the strong attention for their services for some time. 

Shenzhen-based analyst Terry Weng expects 22% of Chinese K-12 students will participate in online tutoring by the end of 2020, compared to the 17% recorded in the previous year.

The country’s online education sector is estimated to more than triple to CN¥696 ($99.3 billion) within the next three years, inching up from the CN¥2036 billion generated in 2018, according to data from a US market research firm.