7 min read.
Since late 2018, venture capital (VC) and private equity (PE) investments in China have slowed sharply, marking a deep “capital winter”, which has been exacerbated by the tension between the US and China. The COVID-19 outbreak early this year threatened to massively shrink the market, as both startups and investors struggled to meet and discuss deals.
Jingdata, an affiliate of 36Kr, reported that startups in China technically raised a total of RMB 420 billion (USD 61 billion) in the first half of 2020, up 30 percent from last year. As the majority of the funding went to massive relief financing of unlisted regional banks, investment in startups alone was actually smaller than last year. With financing deals falling 26 percent to slightly above 1,600 in the first half of the year, analysts expect the overall financing environment to remain tight in the second half.
Yet, startups in a few sectors, aptly named “corona-tech” by Nikkei Asia, have bucked the trend. Of the 50 companies that have raised the most funding in the first half of this year, one-fifth were medical companies, which was twice as many as in 2019. Real estate portal Beike attracted the most funding, raising RMB 9.75 billion (USD 1.49 billion). During the pandemic, Beike’s app has experienced a surge in the number of users who could use their phones to view properties. A number of others, including online education portal Yuanfudao and medical technology startup MGI Tech, have raised at least RMB 6.5 billion (USD 995 million) each.
86insider takes a look at five non-healthcare “corona-tech” startups that have not only weathered the COVID-19 outbreak, but have thrived due to it.
Zuoyebang (Education technology)
Latest financing round and value: Series E (2020), USD 750 million
Backers: Tiger Global, FountainVest Partners, Softbank Vision Fund, Sequoia Capital China
Online learning apps struggled in 2019 as financing dried up during the capital winter and investors focused more on profitability. The COVID-19 outbreak reignited investor interest in these startups, as the number of users surged during nationwide lockdowns. Not only did user numbers jump 46 percent compared to the 2019 daily average, customer acquisition costs also plunged to half of pre-pandemic levels from February until early April. Analysts predict China’s online education users will reach 309 million by the end of 2020, in an industry that is projected to be worth USD 81 billion in two years’ time by research firm iResearch.
Founded in 2014 by Baidu and spun off in 2015, Zuoyebang’s app helps students of any level solve problems and understand complex concepts by uploading image-based queries about their homework to search for solutions. Seven out of every 10 Chinese families have reportedly used the company’s free search engine, pushing the app’s monthly active users (MAU) over 170 million. In this summer alone, the app’s paying user pool grew nearly four times year-on-year, to reach 7.8 million. A strong supply of courses across various subjects and a backend connecting its search tool with livestreaming classes are also strong growth drivers.
With the latest round of financing, Zuoyebang is now the second-highest valued edtech unicorn in China, after Yuanfudao. The company continues to expand its business based on the proprietary image-based search engine, which is the core of the app’s business model.
“We are 80 percent of this market and growing. It shows how much we’re investing in the product,” said Hou Jianbin, founder and CEO of Zuoyebang.
Yunduiyou (Online Freelancing Network)
Latest financing round and value: Series A+ (2018), RMB 75 million (USD 10.56 million)
Backers: Yi Capital, AlphaX Partners, Alpha Startups Fund, Lighthouse Capital
Compared to Western countries, freelancing is a relatively new concept in China. Consulting firm Zhiyan reveals that the penetration rate of flexible staffing in China’s labor force was below one percent in 2018, compared to 10 percent in the US. By 2020, Zhiyan expects over 1.7 million Chinese will choose to freelance, up 16 percent year-on-year, as many companies have cut permanent staff to reduce expenses during the COVID-19 pandemic.
Yunduiyou, which can be considered the Chinese Fiverr, was released in January this year amidst the health crisis to connect businesses with independent professionals. It uses an algorithm to provide hirers with a shortlist of quality matches based on their project needs and the skillsets of freelancers who have set up their profiles on Yunduiyou. After that, it conducts first-round phone interviews to evaluate the quality of freelancers. Yunduiyou tracks project progress and provides a guaranteed payroll payment to ensure the smooth completion of projects, and enhance the security and reliability of the platform.
During the pandemic period, Yunduiyou reported a surge of 560 percent in matches between companies and freelancers, while the gross services value of these transactions increased by 700 percent, according to Chen Jianmin, CEO of Beijing Aiaiyinsi Technology, the company behind Yunduiyou.
“Our goal is to become a connector of human’s working skills,” said Chen.
Run the World (Online Events and Networking)
Latest financing round and value: Series A (2020), USD 10.8 million
Backers: Andreessen Horowitz’s a16z, Peter Thiel’s Founders Fund, Will Smith and Kevin Hart
This is a startup that caught the massive corona-tech wave just in time, when the pandemic forced physical events globally to be canceled or moved online. Created late last year by a former Chinese MBA student at Stanford and her ex-colleague in Silicon Valley, Run the World had already hosted dozens of events, with hundreds more in the pipeline, when it bagged the Series A funding from a16z in May this year. It also has small teams in Taiwan and China.
While Zoom and Twitch provide efficient platforms for broadcasting live talks, they fail to offer the same networking experience that attendees seek at physical conferences. This is addressed by features on Run the World like “Cocktail Party”, which matches attendees for several minutes at a time to simulate the experience of face-to-face networking. One of its customers is Wuhan2020, a large open-source community with more than 3,000 developers who are using the platform as part of a long-distance hackathon that aims to produce tech solutions for those affected by the outbreak in Wuhan.
Events organized on the platform range from hackathons to build pandemic-related solutions, to a conference for tiny home enthusiasts and speed dating. As of May this year, the event organizer has hosted over 2,000 events, with attendees joining from 40 countries.
“We believe the next Nobel Prize winner and Billboard artist will meet on Run the World. Our focus is to continue building features like Cocktail Party that allows a rising artist in LA or a researcher in Romania to collaborate with other like-minded people,” said Qu Xiaoyin, CEO of Run the World.
Versus Programming Network VSPN (ESports)
Latest financing round and value: Series B (2020), USD 100 million
Backers: Tencent, Kuaishou
The gaming industry was a major beneficiary during the COVID-19 lockdowns in China and globally. The China Game Industry Report shows that the sales of games in China surged to RMB 139.4 billion yuan (USD 19.9 billion) during the first half of 2020, up 22.3 percent compared to the same period last year. The gaming community has also accelerated the growth of the Esports industry—China is now the world’s largest Esports market by revenue, after surpassing the United States and South Korea in 2019, as reported by PricewaterhouseCoopers (PwC). The Esports market is projected to grow at a 13.1 percent compound annual growth rate (CAGR) over the next five years, and Versus Programming Network (VSPN) will stand to gain the most.
Founded in 2016, VSPN now organizes about 70 percent of the major Esports events in China, according to its vice president Wang Chenfan. Besides revenue from game publishing companies, VSPN commercializes the competitions by offering sponsorship and advertising opportunities to other firms, including phone brands Vivo and Oppo, automaker SAIC Volkswagen and Tsingtao Beer. It also provides training to aspiring Esports commentators and livestreamers, as well as hosts a variety of talk shows for companies like Tencent and NetEase to promote their games.
After a successful Series B funding this October, the company expects to complete its Esports ecosystem with ambitious projects, which include creating e-sports cultural parks, generating Esports short video content, developing derivative consumer goods, and expanding overseas.
“There is no other company in China like us, which has been building an entire Esports ecosystem,” said Wang.
Yuelin (Online used bookstore)
Latest financing round and value: Series B+ round (2020), undisclosed amount of “tens of millions of yuan”
Backers: Gobi Partners China, 36Kr Venture Capital Fund, Xiangwushuo
Unlike other countries where thrift stores thrive, the idea of buying used goods is mostly frowned upon in China. Nevertheless, Chinese millennials are beginning to enjoy thrifting, which allows them to get what they want at a lower price, or find rare collectibles and vintages.
Enter Yuelin, a startup born on Peking University’s campus in 2017. The company today has over 7 million registered users across more than 1,600 universities and colleges in China. Yuelin operates WeChat mini programs that enable second-hand trading among its users, which mostly involves books. It also operates seven physical stores where people can sell used items and buy things off the shelf. Last year, it reported RMB 50 million (USD 7.16 million) in revenue.
Yuelin runs a “customer-to-business-to-business model” (C2B2B), playing the middleman who sources, renews and resells used books. Students sell used books to Yuelin at prices that are determined by an algorithm based on the conditions and prices on other platforms.The books are then repackaged, a process that helps Yuelin ensure the products are in good shape to earn users’ trust while allowing the company to sell at higher prices to consumers or bookstores.
During the COVID-19 lockdown period, Yuelin facilitated the trading and delivery of study materials to students who were forced to stay at home. When most bookstores are struggling to stay afloat, the company remains buoyant in spite of the pandemic, expecting to triple its annual revenue to RMB 150 million (USD 21.4 million) and break even by the end of this year. Beyond books, Yuelin has plans to recycle any used items, from handbags and clothes, to electronics and home appliances, in the community soon.
“We want to lengthen the life cycle of items,” said Yang Yuhuan, the COO of Yuelin.
Not only has the pandemic spawned corona-tech startups, it has also digitally transformed many traditional businesses, from bookstores to street vendors and farmers. This adds an interesting diversity to China’s economy, as technology continues to drive innovation in business models, supply chains and omnichannel shopping experiences, which carve out numerous niches where enterprising minds can flourish.
Lu Qi, the founder of startup accelerator MiraclePlus, explained, “The COVID-19 outbreak is an unprecedented ‘black swan’ event, which has changed consumer and business habits in a short time. It has created a new world that is up to young entrepreneurs to shape.”