Online education leader Zhangmen becomes game-changer in China's education market

Online tutoring has become commonplace in China. Around 200 million primary and middle school students in China face increasing pressure, as space in the country's best schools and universities is limited. Parents have paid increasing attention to their children's education due to significantly improved living standards and they are willing to pay more for high-quality education services. In addition, the fast growth of internet technologies has helped online educators solve the distance problem and provide a unique edge by giving students anywhere access to experienced tutors. Online education has drawn the attention of both students and their parents. 

Zhangmen is a platform created in response to the wide adoption of online education. In 2014, Zhang Yi left Shanghai Advanced Institute of Finance and declined a full-time job offer from McKinsey & Company to set up Zhangmen by moving its burgeoning offline education operation online. With Zhangmen, primary and middle school students from 8 to 18 years of age can select top teachers for personalized, one-on-one tutoring sessions.

Zhangmen was created as a platform with a focus on making access to educational resources convenient and easy for students. The platform, by making use of internet live streaming technologies, enables students to select top teachers who are graduates of China's first-class universities, among them, Tsinghua, Peking, Zhejiang, Fudan and Shanghai Jiao Tong, for personalized, one-on-one tutoring sessions. Zhangmen provides each student with a program of one-on-one tutoring sessions by different professional teachers which includes taking the student through every step in the service chain, from trialing the class, to course selection, completing the course, taking the required tests and providing feedback once the course is completed. 

By combining live streaming and experienced teachers with one-on-one tutoring, Zhangmen has gained increasing popularity among students and parents. Data released by Zhangmen shows that the platform currently has 40,000 tutors and 3 million registered students across over 600 cities in China following more than three years of development. Turnover jumped from 100 million yuan in 2016 to 1 billion yuan in 2017, representing a 70 per cent share of China's online K12 one-on-one tutoring market. Zhangmen CEO Zhang Yi was included in Forbes' China's 30 Under 30 list in July 2017. 

Favorable government policies and positive market feedback are expected to further boost growth of online education 

Zhangmen's fast growth provides a snapshot of China's booming online education market. Online education service providers are further encouraged by positive government support and market feedback.

In January 2017, China's State Council issued the 13th Five-Year Plan for National Education, as part of efforts to facilitate the development of internet education, in a move to improve access to education across the country as well as to make access more equal for all. On September 1, 2017, new regulations on the implementation of the Non-State Education Promotion Law formally took effect, stipulating that non-governmental educational institutions will enjoy equal rights with schools funded by the government. In addition to providing a clear definition of the legal status of educational institutions in China, the government has demonstrated its commitment to promoting education via internet technologies. 

Favorable government policies have stimulated a positive market response. Given the prevalence of the internet in China, commercialization and digitalization of education resources are not an unreachable goal. The advantages of online education have been expanding, as online education has solved the distance problem, greatly improving fairness in terms of access to educational resources. 

A white paper covering the 2017 online education market in China released by mobile internet industry consultancy iiMedia Research shows that China's online education market is estimated to have reached 281 billion yuan in 2017 and expected to further grow to 348 billion yuan this year. 

Investors are more willing to invest in top education teams, yet, this time around, they are being more selective in where they are placing their bets

The huge potential of China's online education market has attracted the attention of the many "money hunters". Following the initial flood of capital into the education sector in 2015, the sector again witnessed an explosive jump in the amount of capital infusion during 2017. 

According to publicly available data released by Beijing-based education sector-focused new media agency Jingmeiti covering the period up to December 31, 2017, China's first-tier educational market witnessed 412 financing activities in 2017, raising, in the aggregate, 28.286 billion yuan (approx US$4.47 billion), with the majority of the funding focused on K12 programs. Among the top 10 online education institutions in terms of the amount of financing received, nearly half went to K12 online education (including the teaching of English to children of all ages).

At variance with the "undisciplined" initial influx of capital in 2015, investors are now much more selective when placing their bet on the education sector. They focus not only on the dividend, but on the brand strength and team capabilities of the targeted institutions. However, there are few companies that can provide the industry and users with value, resulting in capital flowing to the top teams in every segment. The advantages of the leading players may become even more evident during 2018.

Zhangmen is a high-quality choice for investors. The platform announced successful completion of the D round of financing on January 9, 2018, raising US$120 million from Warburg Pincus and Genesis Capital. The amount represents K12's largest single round of financing in the online one-on-one education sector to date, but also its first capital infusion from a dollar-denominated fund focused on the sector.

In early 2018, with annual turnover having surpassed the one billion-yuan mark (approx. US$158 million) coupled with the injection of US$120 million, Zhangmen successfully entered the 2017 China Internet "Unicorn Club" pantheon. This is a good start, yet Mr. Zhang does not plan to spend even a second sitting on his laurels. He said, "It is inevitable, rather than accidental, that China's online education sector is headed for new heights. The internet, a vehicle that has ushered in a new level of productivity, is changing all aspects of life, including education. Online education is not only popular in China, the model can and will be rapidly expanded into other countries worldwide."

About Zhangmen

Zhangmen, the leading one-on-one education brand for primary and middle school students in China, focuses on offering customized one-on-one tutoring for children between 8 and 18 years of age. The platform now has 40,000 teachers, 100,000 units of proprietary teaching materials and a library comprising 7 million exercise problems. Its 3 million registered students come from over 600 cities nationwide. Revenues topped one billion yuan in 2017.

Founded in Shanghai by Zhang Yi, Zhangmen grew out of the "elite club" jointly founded by top performing graduates from Tsinghua, Peking, Shanghai Jiao Tong, Zhejiang and Fudan universities. With the aim of meeting the demand from a growing number of students and their parents for high-quality, personalized education, the brand undertook the transition to online education services in 2014.

Between 2014 and 2017, Zhangmen completed six rounds of financing, raising capital to the tune of several hundred million yuan from Qingsong Fund, ShunWei Capital, Fortune Venture Capital, Huasheng Capital, Star VC, Warburg Pincus and Genesis Capital.

In July 2017, Zhangmen raised additional capital from the leading venture capital firm SarVC, jointly invested by Ren Quan, Li Bingbing, Huang Xiaoming, Zhang Ziyi and Huang Bo, during its C+-round of financing. In December, the firm completed the D round of financing, raising US$120 million from Warburg Pincus and Genesis Capital.

In July 2017, Mr. Zhang, the Zhangmen CEO, entered the Forbes 30 under 30 China List. In early 2018, with annual turnover exceeding 1 billion yuan  and the large capital injection of US$120 million, Zhangmen became a member of the 2017 China Internet "Unicorn Club".

SOURCE Zhangmen