Why Zuoyebang can get the favor of venture capitalists

Jan 04, 2021 Education ZuoYeBang


As 2020 comes to an end, the competition in the K-12 online education field continues to rage on.

On Dec. 28, Baidu-backed online tutoring startup Zuoyebang announced that it completed more than $1.6 billion in Series E+ financing. In June, the company raised $750 million in a financing round led by investment firms FountainVest and Tiger Global. 

Investors in this round, including Alibaba, Tiger Global Management, SoftBank's Vision Fund 1, Sequoia Capital China and FountainVest Partners. Taihecap  continues to serve as the exclusive financial advisor.

Zuoyebang CEO Hou Jianbin said that the new funds will be used to develop new products for K-12 students and apply new technologies to its services. 

It is worth noting that, after this financing, there are five investment bets on the Zuoyebang among the top 10 global investment institutions, including Sequoia Capital China, SoftBank, Tiger Global Management, Goldman Sachs and Alibaba. 

The K-12 online education track has been the red hot, but the financing news of Zuoyebang still released some signals: Why the head investors have chosen to invest in Zuoyebang? What kind of impact will have on the industry by matching with the head players?


Top 5 global investment institutions grouped together to place heavy bets


In 1972, Valentine founded venture capital firm Sequoia Capital. The firm began to invest extensively in various fields such as technology, consumer service industry, medical and health care, and new energy technology. According to statistics, Sequoia Capital has invested in more than 500 companies, of which more than 350 are new technology companies and more than 200 have successfully gone public. More than 20% of the companies listed on NASDAQ have been invested by Sequoia Capital. This year, Sequoia Capital captured another record number of unicorns, ranking first and far ahead among global investment institutions.

In terms of the strategy, Sequoia Capital insists on long-termism, emphasizing early investment and patience to accompany the growth of enterprises. For example, Zuoyebang has received great support from Sequoia Capital in its Series A financing, and it has participated in Zuoyebang's six rounds of financing.

And SoftBank also participated in this round of financing, whose position in the venture capital world cannot be ignored.

In the global Internet tide of the past decade or so, SoftBank is an important player, and the head sharing economy companies such as Didi and Uber, as well as the emerging head company ByteDance, all get Softbank's continuous support. 

According to SoftBank's second-quarter earnings report released in November, the company's net profit for the quarter reached 627 billion yen (about $6 billion), a significant turnaround from a net loss of 700 billion yen in the same period last year. From the D+ round in 2018, SoftBank participated in Zuoyebang's financing. In June and December of 2020, SoftBank participated in two rounds of financing for Zuoyebang, which is the typical style of SoftBank.

At the same time, Tiger Global Management is also an old friend of Zuoyebang, which participated in two rounds of financing for Zuoyebang's Series C in 2017 and Series E in 2020.

Founded in 1980, Tiger Global Management is one of the world's largest investors in listed and private technology companies. It has invested in Amazon in the U.S. and JD.com in China.

Over the years, Tiger Global Management has been deeply involved in Chinese Internet companies and in recent years has gradually started to invest in emerging sectors such as artificial intelligence and online education. And Tiger's investment logic over the years has been more focused on down-to-earth corporate style: a clear and simple business model that becomes an industry leader when the market gets bigger.

Goldman Sachs is a leading global investment banking, securities and investment management firm that provides a wide range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments and individuals. Its most famous investment cases are its participation in Facebook, Uber and other Internet unicorns. Facebook is now a global social juggernaut, and Uber is back on an upward trajectory after its IPO slump.

Among a host of investors, Alibaba is also betting on the head companies. Alibaba's investment is focused on mid- to late-stage projects, including preschool education, children's English, K-12, etc., helping education inclusion and high-quality development through investment.

Combining the backgrounds of the five major institutions, it is easy to see that the common strategy is to bet heavily on the head companies, and it is also easy to see that the perceptive investors have high expectations for Zuoyebang.

Meanwhile, a number of industry-leading investment banks have invested in Zuoyebang, releasing powerful signals: globally renowned investment institutions are bullish and flocking to the online education track one after another, and the online education industry landscape is in white-hot competition; five of the world's Top 10 investment institutions are betting on Zuoyebang, and its position at the head of online education is further recognized.

The question that deserves more scrutiny is: What do the five top institutions interested in about Zuoyebang? What impact will this round of financing have on the whole industry?


Fast-growing Zuoyebang


Among all the winds blowing in 2020, online education is undoubtedly the hottest one.

Around 2017, the dual-teacher model gradually matured to lay the foundation for the takeoff of K-12 online education, and then, after two jumps in the summer war in 2019 and the epidemic in 2020, the overall penetration of online education is incomparable with that of two years ago.

According to the public data: in the autumn of 2020, the volume of students of Zuoyebang regular price classes exceeded 2.2 million, which has basically caught up with the industry leader for many years, and the industry is ushering in a historic moment.

While the whole industry is developing rapidly, the ranking is also changing drastically. The potential energy of the fast-growing players is getting bigger and bigger, which not only has the possibility of overturning the industry pattern, but also shows considerable imagination space. It may be an important reason for the top institutions to invest in Zuoyebang.

In addition to scale and speed, what is more noteworthy is efficiency.

This summer, the online education track of the burning money war continues to be staged, and with the intensification of competition in the industry, the tricks that rely on the cash-burning model to attract customers has shown weakness.

Besides, the high cost of acquisition has become a huge problem in the development of online education: on the one hand, the continuous investment in cash-burning model puts great pressure on the company's capital reserve. On the other hand, if you can't get the ideal conversion of investment, it will also affect the confidence of investors buy in.

Therefore, in the new round of the battle, efficiency and efficient scale instead of mere scale itself has become the next competitive direction that online education players must think about. In fact, at this stage, how to obtain traffic more efficiently and achieve conversion is a greater test of the platform's comprehensive strength.

In this regard, Zuoyebang, which started as a photo search app, has accumulated certain advantages in relying on its own system of traffic conversion to promote scale expansion and reduce acquisition costs.

Founded in 2015, Zuoyebang initially started with the photo search app, and its polishing of tools has enabled it to accumulate a large number of users. The public information shows that the accumulated activated users of the app now exceed 800 million, occupying more than 75% share of the traffic side of K-12 online education in China. Under the epidemic, the daily active users of Zuoyebang exceeds 50 million. This huge own traffic pool provides a great help for Zuoyebang to get customers at low cost.

Starting from 2017, Zuoyebang tried to convert the huge traffic into course users, and in 2018, it built a vertical course recommendation system based on Zuoyebang app, tried an intelligent matching push mechanism to convert in-end traffic, and a series of preparations were made to usher in the explosion of in-end traffic conversion in Spring 2019.

After the traffic conversion user run-through, Zuoyebang became the fastest growing head K-12 online education brand in the past three years. The data shows that from Autumn 2017 to Autumn 2020, Zuoyebang achieved 24 times growth in 3 years for students of regular-priced classes.

Nowadays, it has become an important label to distinguish Zuoyebang from other online education companies in terms of its own traffic. From the industry trend, many head education companies are re-investing resources in photo search tools, which is the catfish effect brought by Zuoyebang model. The self-owned traffic helps Zuoyebang establish core differences to achieve scale and efficiency, which is another important reason for the five major investment institutions to bet on it.

The new round of online education industry war is still going on. The investment in Zuoyebang is not only the recognition of its past achievements, but also a bet on the future.

This is an article from WeChat official accounts Deep Insights (ID: deep_insights), written by Guo Fanyu, translated by Chris Yuan.