The Federal Reserve surprised many with a half-point rate cut this week. Economies around the world are easing borrowing costs, with more cuts expected on the horizon for most advanced economies.
India’s PhysicsWallah raised a $150M Series B at a $2.8B valuation. The round was led by Hornbill Capital (a joint venture of China’s Orchid Asia and India’s Hornbill). About $70M of that came from Hornbill, and a substantial amount came from Lightspeed Ventures, which had invested in Byju’s.
Google added another $25M to their AI Opportunity Fund, bringing the total balance to about $100M. This $25M is spread out across aiEDU, STEM from Dance, CodePath, ISTE, and 4-H.
Goldman Sachs just invested an undisclosed sum into Interplay Learning, which allowed them to acquire Industrial Training International. Both Interplay and ITI focus on skilled trades training, like rigging, loading and handling, etc.
Domestic Funding Collapses in China
It’s still too early to predict that the bloodletting in the EdTech funding arena will improve. PhysicsWallah is definitely an anomaly, because it attracted funding from Orchid Asia. If we thought the global EdTech funding picture looked gloomy, just look at the overall VC funding in China.
State-owned VCs are filing lawsuits against hundreds of portfolio companies (Shenzhen Capital Group has filed 41 since 2023 alone) that are breaching their contractual obligations of going public or ponying up. Risk tolerance among founders is decreasing, so fewer people are willing to start businesses, and fewer still are opting to raise money from any local VCs (since all the foreign ones have left).
Which means that Chinese VCs are looking abroad. 2023 was a brutal year, but the domestic startup environment is also recovering far slower than Southeast Asia, South Asia, and Africa’s. China left their benchmark rate untouched this past week, defying expectations, but many expect they’ll trim their loan prime rates soon. That’ll unlock more risk-seeking capital, which will in turn look for deals…which won’t exist.
In 2022, foreign investments made up 14% of Chinese VC’s portfolio, up from 8% in 2017. We expect that shift to increase in 2025, especially as overall funds remain small in China. Chinese VCs will set up affiliate funds, like Hornbill Capital, to funnel funding outside the market.
If you’re an EdTech startup in an emerging economy, you might not be able to drum up interest from CZI or regional VCs, who can find perhaps better returns in other industries, but Chinese affiliate funds will look for any deal they can find, especially as rate cuts accelerate, but domestic startups remain frigid.