The emergence of small-class model is not only to meet diversified market needs but also to break through the current market situation. Difficult to achieve profitability despite a better model Due to limited resources, we all need to play our best card in this game.” Zeng Lingding said. “After a wave of burgeoning, the industry now is coming to a stage of self-adjustment and reflection. The increase in gross profit margin will also be reflected in next quarter’s report. Hawo’s CEO Zeng Lingding also told JMDedu that the losses were quickly controlled after the company’s operation adjustments this year. For small-class institutions, “relying on self-sufficiency rather than external inputs has become the most important weapon for enterprises to survive in the capital winter.” said Wu Hao, CEO of Whales English, at GET 2018 Summit organized by JMDedu.
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According to the publicly disclosed information, there were only two deals in this sector in 2019 H1 that Proud Kids and AirUS have raised Series Pre-A round of financing with tens of millions RMB.
This year, the investment news for online small-class sector significantly dwindled. During the past several years, the biggest deal in this sector was closed by Landi English, raising 520 million RMB (USD 76.5 million) in Series C round in 2018. And at the end of 2016, Magic Ears, an internal incubated entrepreneurial project by Yuanfudao, has secured its A round of financing with 120 million RMB (USD 17.65 million) last year. For instance, Qkids as an early bird entering the industry has completed its angel round financing in 2015 and acquired the B round financing from IDG Capital two years later. That’s why this track has been favored by capitals since a few years ago. However, the small-class is expected to solve the profit problem faced by one-on-one model.
The small-class model started later than one-on-one and will enjoy a slower growing speed due to the more complex operation process.
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In this new phase, how to vie for the market share driven by the rigid demand of kids’ language training? There are still many challenges. In addition, companies need to further optimize the operation model of small-class by solving the prominent problem of this model known as “full enrollment rate” which means that the quota of each class has been filled. Although the gross profit margin is higher than the one-on-one model, small class is still limited to be scalable given the high cost of customer acquisition. In fact, only few small-class institutions are able to achieve large-scale profitability at the current stage. An industry practitioner said that companies centered on small-class business are no longer easy to secure financing compared to last year. Compared to last year’s flourishing development, the small-class track is relatively silent in 2019.
At the same time, VIPKID also launched online small-class courses with an attempt to tackle the profit problem that one-on-one model has suffered from. In 2018, China’s education market witnessed the boom of online English small-class institutions that Magic Ears and Landi English have received hundreds of millions of dollars in financing.
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