Warburg leads $120m financing for Chinese online educator

The firm has teamed up with the internet giant Tencent to back China’s first “unicorn” in online tutoring.

Global private equity firm Warburg Pincus has led a $120 million funding round in Chinese online education provider Yuanfudao, a deal that values the company at $1 billion.

The financing was led by an affiliate of Warburg alongside existing investor, Chinese internet giant Tencent, according to a statement.

Yuanfudai is a Beijing-headquartered K-12 online tutoring platform with a paying user base of over one million. In addition to its tutoring services, Yuanfudao also provides curriculum design and research by utilising existing big data from the company’s two other two platforms: Yuantiku, a self-practice problem set tool and Xiaoyuansouti, a problem solver search tool.

Private equity firms China Media Capital and New Horizon Capital as well as venture firms IDG Capital and Matrix Partners China previously invested in the company.,

The deal is the largest ever funding round in China’s online education sector, which generated revenues of 156 billion yuan ($22.8 billion; €20.4 billion) in 2016 with a growth of 27.3 percent, according to market research company iResearch. Revenues for the sector are expected to reach 270 billion yuan in 2019.

“Education is a lasting theme in every Chinese family with significant investment, and Yuanfudao has established itself as a pioneer in China’s online education sector with a mature business model, leading scale and brand,” Warburg Pincus managing director Gordon Ding commented. “Unlike the traditional tutoring model, which requires intensive offline resources, online learning is becoming a primary choice of Chinese families thanks to its easy access and high efficiency.”

Warburg manages over $44 billion in private equity assets globally, investing over $16 billion in technology, media and telecommunications (TMT) sectors globally. In China, the firm has invested over $7 billion in nearly 100 companies including classified ads site 58.com, semiconductor company RDA Microelectronics, online used-car company. In January this year, the firm also teamed up with Tencent to lead the $215 million funding round of Beijing-based bike sharing company Mobike.

The firm is currently deploying its 2015-vintage $13.4 billion global private equity fund Warburg Pincus XII and its 2016-vintage $2 billion China-focused fund.