Pre-IPO Investment of Over Half a Billion
Before it went public, YQ had already attracted considerable interest from investors. Established in Shanghai in 2012, the company has completed several rounds of fundraising over the past decade. The company's Series A funding round in 2012 raised $5 million, with Shunwei Capital acting as the lead investor. In September 2013, the company's Series B round drew $10 million from ZhenFund, Victor Wang, and Shunwei Capital.
Shwunwei Capital is an active investor in multiple Chinese Internet companies. As of December 2020, the company has made over three hundred investments and achieved over twenty exit events. Shwunwei Capital's successful investments include NIO (autonomous electric vehicles), Xpeng Motors (electric vehicles), Huami (wearable device company with more than 50 million units sold), and Roborock (makes robotic vacuum cleaners for stores in China).
Shwunwei Capital is not the only company to invest significant funds into the education startup. In March 2018, Toutiao announced investing $200 million in 17 Education & Technology Group. The investment is notable because Toutiao is not a traditional investment fund. Instead, Toutiao is a technology company that provides personalized product recommendations to users in China. Toutiao has also grown by buying other technology companies such as Musical.ly, which it acquired for $800 million in 2017. Toutiao has raised more than $20 billion from investors on its own.
How Much Is 17 Education & Technology Group Making?
With hundreds of millions of dollars in investments, 17 doesn't have to worry about cash. While the company has grown revenues, it is far from profitable.
- Revenues. The company earned $118 million US in the first nine months of 2020. That represents significant growth over last year when the company made $59 million for 2019 on a full-year basis.
- Net Losses Are Increasing. In the first nine months of 2020, the company reported a net loss of $696 million. That performance is far worse than last year. In 2019, 17 made a net loss of $230 million.
- Gross Profit Increases. Overall, the company is losing money. However, there is some cause for hope. Gross profits in 2019 were $34 million. In contrast, the company has reported a gross profit of $71 million in the first nine months of 2020. Gross profit excludes operating expenses like sales and marketing, research & development, and administrative costs.
- Successful Price Increases. 17's growing revenues are not driven solely by larger numbers of paying customers. The company has also successfully increased its prices over time. According to a public disclosure document filed with the SEC, "Our median level of course fees increased by 13% from 2018 to 2019, and increased by 34% from the nine months ended September 30, 2019, to the nine months ended September 30, 2020." If the company continues to grow its prices over time, such increases may help it achieve profitability.
- Cash Reserves. As of September 2020, the company had $119 million in cash. Factoring in the expected cash proceeds from the IPO, it is safe to say that it may have $200 or $250 million in cash to fund its operations.
17's Approach To Education
In 2020, education has had to change faster than ever before, thanks to the COVID-19 pandemic. Specifically, schools have had to adapt to online learning. In some jurisdictions, online schooling has unfolded somewhat chaotically with a variety of tools such as Zoom. 17's approach to facilitating learning is different.
The company offers both in-school and after-school education. That matters because it means 17 is less dependent on emergency COVID-driven adoption of digital schooling. Already, the company reports that more than seven billion homework assignments have been completed through the platform. Also, the platform includes verified accounts for teachers, students, and parents.
The $37 Billion Education Chinese Market
Since 17 offers multiple educational offerings, it does not fit neatly into a single market category. However, there is some value in comparing the company to the private tutoring market. According to the South China Post, China's online education market is worth more than $37 billion US dollars. Deloitte estimates that the Chinese private education sector may be worth up to $238 billion US. If these figures hold in 2020 and beyond, 17 may be on the path to becoming a billion-dollar company.
About the Author
Bruce Harpham is an author and marketing consultant based in Canada. His first book "Project Managers At Work" shared real-world success lessons from NASA, Google, and other organizations. His articles have been published in CIO.com, InfoWorld, Canadian Business, and other organizations. Visit BruceHarpham.com for articles, interviews with tech leaders, and updates on future books.