Article by Tim Culpan discusses venture investments in China and includes our view of similar transactions to date.
American venture capitalist Kobe Bryant may soon learn that a drive to the basket doesn't always end with two points.
Bryant, an 18-time NBA All-Star and co-founder of venture capital firm Bryant Stibel, this week announced he's investing some of his firm's cash in Chinese education-technology company VIPKID. The move comes weeks after Sequioa Capital and Jack Ma's Yunfeng Capital led a $100 million round of funding.
VIPKID is one of dozens of companies tapping into the desire among Chinese parents to give their progeny a leg up on the competition. A 94 percent climb in New York-traded New Oriental Education over the past year helps explain why investors such as Ma, Bryant and Jeff Stibel are willing to take a punt.
Shares of New Oriental Education & Technology have swung between gains and losses amid China's fickle market for education.
Like New Oriental, VIPKID is focused on the increasingly crowded market for foreign-language (read, English) learning in China. As Bryant Stibel says:
VIPKID is bringing the North American elementary school experience to Chinese children.
At first glance, the market potential looks to be there. China has a huge population with a hunger to get ahead. Jack Ma, himself a former English teacher, is the poster child for a simple kid who became a billionaire through education and hard work.
“It’s a no-brainer for me," Bryant, who holds the record for the most seasons with the same team, told the Los Angeles Times. "We have to look for companies adding value to society, helping kids learn and grow.” It apparently took Bryant less than the span of a half-time break to make the decision.
But as Educated Ventures partner Todd Maurer wrote recently, a note of caution ought to be sounded on the billions of dollars pouring into China's edtech sector, given a likely peak in the number of children going to school.
World Bank data show gross primary school enrollment jumped from 92.1 percent in 2001 to 114 percent in 2009 before falling off again. It's probably no coincidence that companies such as New Oriental made their mark during this boom, leading to U.S. listings. With a lag of about six years between primary and secondary school, we can expect that later-year enrollments and the accompanying revenue have already topped out.
As the school-age population slows or declines, education providers need to lure more of that shrinking pool to their platforms. Yet there were 9,500 online-education providers in China at the end of last year, according to data from China's E-learning Research Institute -- including as many as 2,400 focusing on kindergarten to year 12 (K12) -- making it a crowded and fractured sector.
Maurer points out that while New Oriental is the dominant player in the after-school tutoring business, even this giant can lay claim to only 2 percent of the market. No wonder then that the E-learning Research Institute estimates just 5 percent of online-education providers turned a profit last year.
Kobe Bryant may think that his investment is a no-brainer, but as the third-highest points scorer in NBA history he also wears the crown for most field goals missed. His playing strategy was that you have to put up a shot if you want to make the basket. Even he knows you can't always make a slam dunk.
UNESCO notes that this figure can exceed 100% because of over- and under-age enrollments and students repeating
The World Bank/UNESCO data end at 2013. Later years aren't yet available.
To be clear, missed shots aren't necessarily seen as failure but a product of playing style.