English teaching service VIPKID raises $200M and reportedly hits a $1.5B valuation

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VIPKid, an online education company that matches Chinese students with North American teachers, was valued at more than $1.5 billion in a round of funding from investors including Sequoia Capital China and Tencent Holdings Ltd., according to people familiar with the matter.

The Beijing-based company said Wednesday it had raised $200 million to expand into new markets and broaden its academic offerings, without disclosing any valuation. Its investors also include Sinovation Ventures, Zhen Fund and Jack Ma’s Yunfeng Capital.

Cindy Mi | Photographer: Giulia Marchi/Bloomberg

VIPKid has seen explosive growth as Chinese parents seek out high-quality education for their children, particularly in English. The four-year-old startup has expanded to more than 20,000 teachers and 200,000 students, and projects revenue to reach 5 billion yuan ($750 million) this year. As part of the fundraising, VIPKid said it will begin offering Mandarin classes and target students in the U.S. and beyond. Founder Cindy Misaid she anticipates reaching 1 million students by 2019 through expansion into new subjects and geographies.

“We’re not interested in building an after-school tutoring brand,” Mi, 34, said in an interview. “We’re really interested in rethinking what learning will look like in the next 10, 20, 30 years.”

If the U.S. Won’t Pay Its Teachers, China Will

Today, VIPKid connects Chinese students from the age of 4 to 12 with teachers primarily from the U.S. to study English, math and other subjects. Classes take place online and are typically two or three times a week for 25 minutes.

“When she had this crazy idea to go ahead and teach five-year-olds over the internet, no one believed this was possible,” said Robert Hutter, managing partner of the U.S. venture firm Learn Capital, which has backed Mi. “Obviously, she proved them wrong.”

VIPKid’s event on Wednesday was held in a small ballroom downstairs from their future headquarters in East Beijing. Cheerleaders in miniskirts and gray-uniformed baseball players, a Chinese take on the American dream, greeted guests as they arrived.

“Every half year the performance exceeds expectations,” said Deng Feng, founding managing director at Northern Light Venture Capital. “Cindy will listen to you but she won’t totally listen to you. The best entrepreneurs never do everything you say.”

Like every fast-growing startup in China, VIPKid faces a flood of competition. iTutorGroup, which works in China under the VIPABC brand, hit a valuation of more than $1 billion in late 2015 as it raised money from Goldman Sachs Group Inc. and Singapore sovereign fund GIC. China Online Education Group, known as 51Talk, went public last year and is valued at about $340 million. TAL Education Group, also based in Beijing, provides in-person after-school tutoring in cities around China. Its stock has more than doubled this year, climbing to a market value of $15 billion.

Wu Wenhua, 38, was investigating several alternatives for her son Ryan, 11, when she got a cold call from VIPKid.

“At first, I didn’t believe in its pitch,” she said. “So I thought let’s try a free lesson and I thought it was alright. I waited two weeks and I looked up some other organizations. But I didn’t feel they were well-tailored to teaching China’s children.”

Ryan has now been taking classes at VIPKid for about 18 months and she’s satisfied with how the extra lessons help him at school.

“He got 99 on a recent exam,” she said.“He dropped a point.”

Mi said that her goal is to deliver the most efficient way to learn, rather than the cheapest per class. She said Chinese parents will pay for tutoring if they see their children actually learning, instead of wasting time with poor teachers or programs.

She brought in education experts to develop a standardized curriculum so the company would have control over what is being taught. Developers helped create software that lets students in China learn from English speakers half a world away with real-time audio and video.

This year, she’s hired additional engineers and other staff to develop new capabilities. For example, parents now get recommendations for teachers that match their children’s interests, similar to the movie recommendations from Netflix Inc. Parents also can grade their teachers with star ratings, and teachers can see the feedback so they can learn from it.

“Other people are still trying to figure out how to bring down their CAG or acquisition cost,” said Mi. “We’re well beyond that.”

Bloomberg News
With assistance by Peter Elstrom, David Ramli, and Lulu Yilun Chen

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