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Edtech’s venture-backed globalization pauses at China

U.S.-based edtech investors are increasingly going global, but recent regulatory crackdowns in China, which instructed local K-12 tutoring startups to go non-profit, have led to a chill among check-writers looking at the country.

When I first started reporting on edtech over a year ago, U.S.-based investors often cited China as validation of the opportunity for direct-to-consumer businesses in the K-12 world. The success of Chinese edtech was used to predict the surge of U.S.-based consumer edtech, which saw parent adoption surge during the pandemic.

On Saturday, however, the Chinese government rolled out legislation aimed at easing the financial burden of education services on families, at the cost of venture-backed startups. The reactions were mixed: One founder told me they doubled their personal stake in every publicly traded Chinese edtech startup, considering the present issues a blip in the timeline, but another told me that they were glad they sold their investments in China just last month.

And everyone seems to be looking to India as the next geographic testing ground.

‘We didn’t think we were smart enough’

Reuters reported last week that China is barring for-profit tutoring platforms on core school subjects. The country has also introduced time caps and tutoring curfews, and notably, forbade the platforms from raising capital through IPOs as well as advertising their programs. The news sent Chinese edtech stocks tumbling — NYSE-listed TAL Education’s shares, for instance, closed at $4.47 per share on Monday, down nearly 80% from $20.52 per share last Thursday before the news broke.

Owl Ventures, which has one of the largest edtech-focused funds at $585 million, has been actively investing globally over the past few years. Investor Ian Chiu said last October that he views K-12 tutoring in China as “the biggest market right now in education”.

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