Across The Border | More online education start-ups in China expected to close down in 2016 as profits prove elusive

This year is likely to see more forced closures of online education start-ups in China because of difficulties in maintaining profitability while newcomers face funding challenges amid a slowdown in the Chinese venture capital industry, market watchers say.

Ronald Wan, chief executive at Partners Capital International in Hong Kong, said most Chinese online education start-ups currently fail in their efforts to develop a sustainable, profit-earning business model.

“The online education market is promising and the ideas are always fantastic, but how to transfer the ideas into a profitable business is difficult for entrepreneurs,” said Wan.

A report from China’s Internet Education Research Institute shows that only 5 per cent of mainland online education firms earned a profit in 2015. Nonetheless, the online education market in China, the No 2 economy in the world, is expanding rapidly, having reached sales of nearly 119.2 billion yuan (HK$141 billion) in 2015 and is forecast to grow to 204.6 billion yuan by 2018, according to iResearch data.

The promising outlook saw China’s online education market become the red hot favourite of venture capital in 2015. Start-ups rushed to the capital market last year, with at least 19 out of 90 raising rounds of more than US$20 million and a handful raising upwards of US$100 million.

However, despite the adequate funding support over the last two years, many online education start-ups have run out of money and were forced to close their business due to unprofitable business models. More than 30 out of 110 well-known Chinese online education start-ups including Tizi.com, nahao.com and fenbi.com, all shut down after running out of the money raised over the last two years.