Why is it so hard for Chinese edtech startups to make money in an alluring market?

Parents’ willingness to pay and investors’ enthusiasm are not enough to ensure a profitable future for edtechs that still lack a viable business model

In China, spending on education accounts for more than  25% of household expenditures (in urban households, the percentage can be as high as 42.2%), compared with 2.3% in the US. It comes as no surprise, then, that the edtech sector is popular among Chinese investors.

Over 50% of global investment in edtech flowed into Chinese startups in 2018. In June of that year, English tutoring app VIPKID raised US$500m in its Series D+ funding, the single largest venture round ever for an edtech startup. During the first three months of 2019, Chinese edtechs secured 131 investment deals, raising over US$1.86bn in total with a year-on-year increase of 2.44%.

“The market demand is always there and continues growing,” said Zhang Lijun, partner and executive director at Sinovation Ventures, which has invested in around 30 edtech startups, including VIPKID.

Regulatory issues

Despite the enthusiasm, the Chinese edtech market faces

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