New Funds For Online Education, Info

Al07 gets new funding

Funding may be drying up for Internet companies in mainstream sectors like e-commerce, but 2 new deals for online firms in the education and information space show there’s still money out there chasing some of these less developed niche areas. More broadly speaking, these 2 newest deals are also relatively small, reflecting the fact that we’re unlikely to see many blockbuster new financing rounds of $100 million or more anytime soon in China’s overheated tech space. That said, some of these newer deals in emerging spaces could represent important interesting investment opportunities that could ultimately be purchased by bigger rivals or make offshore IPOs.

Both of these new deals are of similar size, involving investments in the $10-$15 million range. The more advanced of the pair has online educational specialist Alo7, an English language learning site, landing a third round of funds valued in the tens of millions of yuan. (English article) I’m unfamiliar with this particular company, but would expect the deal was probably in the $10-$15 million range I mentioned above, which would be the equivalent of 60-90 million yuan.

Honestly speaking, I’m a bit surprised that more companies haven’t tried to develop the online eduction sector. To date, the private education space in general has been dominated by operators of real-world classrooms, ranging from publicly traded homegrown players like New Oriental (NYSE: EDU) and Tal Education (NYSE: XRS) to global names like Disney (NYSE: DIS).

Many of these more traditional education companies have seen their growth slow sharply in the last 2 years. That’s partly due to overheated competition, but also because these businesses can’t easily find big savings as they get larger, since many of their operational costs are directly proportional to their student numbers. Online education, by comparison, is much more efficient since it avoids many fixed costs like classroom rentals and teacher salaries. I don’t know how much about Alo7, but its presence as a relatively advanced player in a space with good growth potential looks encouraging to me.

From Alo7, let’s move on to the other funding recipient, an information company that I’m a bit more familiar with called Snowball Financial. Media are reporting that Snowball has just received $10 million in second-round funding from Sequoia Capital and Morningside Capital. (Chinese article)

I’m familiar with this company because they’re in a similar business to myself, namely providing information on publicly listed companies to investors, with a special focus on US-listed Chinese firms. Snowball was founded by a former news editor at online portal and game operator NetEase (Nasdaq: NTES), and I should also say that I talked with them briefly about a tie-up several years ago and currently still use their popular Xueqiu platform to publicize some of my commentaries.

All that said, I should say that this company looks interesting because it’s in the relatively underdeveloped space focusing on quality news for stock investors. But that said, I’ll also add my own view that focusing on this group poses the same difficult challenge faced by many news sites in general. In short, most of the people who use sites like Snowball’s tend to be small, retail investors who don’t like to pay for information. Accordingly, Snowball probably won’t be able to get much money from these investors and will have to rely on other sources like advertising for most of its revenue.

At the end of the day, both Alo7 and Snowball are probably still at least 2-3 years away from a sale of the company or IPO, and I suspect that Snowball won’t show any profits for at least that long or even longer. These companies certainly aren’t in sexy new areas like location based services (LBS) and online wine sales, which have attracted major new interest from some investors. But perhaps these kinds of lower-key, more traditional online businesses will ultimately have better chances of success, since they will probably attract less competition from others entrepreneurs seeking to chase the latest online fads.

Bottom line: Al107 and Snowball Financial are likely to require 2-3 rounds of additional funding each before potential company sales or IPOs in the next 2-3 years.

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