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China’s long and illustrious history with education, which takes center stage in a family’s social standing, has prompted a wave of EdTech start-ups. Over the past half decade, China has led global growth in education-based VC investment, now accounting for half of all spending in the sector. According to data from HolonIQ, eight of the 14 EdTech unicorns in existence hail from China, as of early 2020.

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In March 2020, as the global lockdown eased in, VC funding rebounded as the search for start-up bargains commenced. According to data from the Asian Venture Capital Journal, March saw Chinese start-ups and tech companies raise more than $2.5BN, a sixfold increase from the month prior. The boom pointed to funds exploiting lower valuations prompted by the pandemic. Although China was able to bounce back from the pandemic-induced economic inactivity, compared with the first quarter of 2019, Chinese VC financing still fell by more than half to $3.8BN.

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VC investments into EdTech in 2020 were almost twice that of 2019, yet since the outbreak of Covid-19, VC activity into early-stage investments has decreased. One reason may be a systemic issue regarding recessions, during which early-stage VC investments decline and those that are funded tend to be less impactful since support has prioritised mature start-ups. The focus? Whoever could survive and thrive in a pandemic.

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Hence, calls have been made to “look beyond funding the current race to scale and directly address the deficiencies that schooling in the time of Covid-19 has painfully revealed”, even if this means taking abnormal risks on somewhat outlandish start-ups.

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Mature start-ups such as Yuanfudao, which offers test preparation services, and tutoring platform Zhangmen are notable examples of systematic dangers being perpetuated in the Chinese education industry. They fuel existing models of education that reinforce and arguably exacerbate an approach to education prioritizing grades over grit and intelligence over innovation. This attitude risks slowing the pace for a more relevant education that equips students with the complex challenges of tomorrow.

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Differentiating between education and learning is necessary and important for China to remain competitive in the years to come. Education was once conducted through the standardization of examinations, the rote-learning of facts, and the one-size-fits-all worksheet, intended to be completed in x minutes by x students. However, recent shifts bode well for an optimistic outlook.

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In early March 2021, Tang Jiangpeng, principal of the Xishan Senior High School in Jiangsu, spoke at the 13th CPPCC National Committee about the true meaning of education, arguing that \"students who are only good at testing will not succeed in the tests of the future. If our education only focuses on the enrolment rate, the country will have no core competitiveness. Grades are not the be-all and end-all of education. The overall quality of today's children will determine the overall strength of our country and the happiness of our society in the future.”

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Whether the sentiments put forward by Tang can translate into more creative, holistic approaches to Chinese EdTech start-ups is worth keeping a close eye on. Under this welcome vision, VC investment should look towards those with viral potential to alter the way education is perceived and practiced in China. Neglecting EdTech start-ups that play around with lifelong learning, vocational learning and creativity, for example, is nothing but a missed opportunity.

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And yet for many Chinese parents for whom private education is the target market – whether tutoring, admissions, online courses or AI-powered homework help – grades are still gold. A recent publication, “Getting Ashore” by Amber Jiang, details a mother’s personal account of successfully admitting her son into one of Beijing’s notoriously competitive middle schools. She explains, “my son was under pressure. He later told me he was also concerned about losing face. It’s a matter of vanity, as he put it.”

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Jing Cesarone, CEO of Childwise, commented that “global investors are always on the hunt for the next big wave; the big China play is addressing the needs of China's rapidly expanding middle class. China's Confucian society greatly esteems family and education. Consequently, many providers have emerged to satisfy this demand. Chinese VCs are most attuned to tech companies, so for education that means EdTech, but tech without content is constrained. Childwise for example uses technology to deliver its service, but the greatest value is its unique and exclusive content. Tech is easily replicable; content is king!”

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Two examples of EdTech startups addressing the need for less strenuous education are Meishubao, a Hangzhou-headquartered platform founded in 2014 that teaches painting and drawing, and Hetao, a coding platform established in 2017 for students aged six to 12. As Hetao’s CEO and founder Ceng Pengxuan stated, “six to 12 years is the golden period for cultivating children's thinking and cognition. With reasonable technical means, we hope to provide a personalized learning experience for every child.” Hence, both look beyond the curriculum and offer subjects that stimulate creativity and independent thinking.

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In an effort to fill the cracks in our global education system, taking a leap of faith in Chinese EdTech start-ups that veer away from examinations, tutoring and admissions, could mark a new chapter in how the next generation are educated. No millennial should be stressed, depressed and exam-obsessed.

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Tag: #vc investment

VC Investment into Chinese EdTech Startups Must Address Systematic Shifts in Education