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China's VIPKid raises US$200m led by Tencent, Sequoia

[TOKYO] VIPKid, an online education company that matches Chinese students with North American teachers, raised US$200 million as it expands into new markets and broadens its academic offerings.

Sequoia Capital China led the investment round and internet giant Tencent Holdings Ltd is backing the Beijing-based company for the first time. Its existing investors include Sinovation Ventures and Jack Ma's Yunfeng Capital.

The startup's valuation is now more than US$1.5 billion, according to people familiar with the matter, who asked not to be identified discussing private details.

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 (S$1.02 billion) this year. As part of the fundraising, VIPKid said it will begin offering Mandarin classes and target students in the US and beyond.

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Founder Cindy Mi said 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," Ms Mi, 34, said in an interview. "We're really interested in rethinking what learning will look like in the next 10, 20, 30 years."

Today, VIPKid connects Chinese students from the age of 4 to 12 with teachers primarily from the US 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 US venture firm Learn Capital, which has backed Ms 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 US$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 US$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 US$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 organisations. 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." Ms 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 standardised 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 Ms Mi. "We're well beyond that."