Jenny Lee of GGV: Why EdTech is not a ‘Winners Take All’ Sector

Rita Yang  

Hi, Jenny, welcome to the show.

Jenny Lee 

Hi, it’s good to be back.

Hans Tung

It’s always good to have you back.

Rita Yang  

How did you become interested in EdTech in the first place?

Jenny Lee 

This is a sector that we have been investing and looking at since 2014. I think the sector it’s called EdTech, but it does have a lot wider definition. At GGV, we look at it as leveraging technology, new product innovation to change the world learning, but it’s hard to call it learning tech, it doesn’t sound quite nice. So, we lump it under EdTech. And so if you look at this sector, the key underlying change or driver here that we are trying to capture is that,  humans, whether they are kids or adults will continue to seek for additional information for learning, so it’s a broader learning category that we are looking at. So as tech investors, we don’t want to invest in just first generation, going to classes, finding great teachers listening to some podcasts. I think we are looking for a potentially new destructive way of bringing this learning to different demographic, different age groups in different countries. And this is a very long-term sector for us. We started looking at this almost six years ago. And now today, across GGV, we have about 15 portfolio companies in China, US, Indonesia, and India, and we can talk about it. But underlying this is really about how can we now bring learning in different formats, in different modules, and whether it’s real time or asynchronous, so anytime, anywhere learning versus kind of together learning. So, the different formats, and the different business models, different content delivery methods are where we focus on. I think, on top of this, we also pay attention to underlying technology. So they may not look like education company or learning companies, they may look like software companies. But to enable all that we talked about innovation in this whole learning sphere, we do need tech, the tech could be in the form of natural language processing, could be in the form of AI, could be in the form of AR, 3D rendering. And that also allows content and service to be delivered in a new way, to different client devices, whether it’s laptop, mobile, or new, engaging products, like AR glasses, for example. So, we would put that also under the whole EdTech landscape.

Hans Tung 

I want to add that Jenny’s timing in looking at EdTech is very good, especially in hindsight. In the mid 2000s, there was a wave of offline education companies growing up in China. And that was happening during the ADSL expansion, PC, desktop internet era. And most of those companies did not end up being very big, because they don’t know how to embrace tech to help them. And it was too early to do tech without smartphones. So the two big companies that made it from that era was obviously New Oriental and TAL, they have done well, that many more did not make it then and then by 2014, six, seven years after iPhone started, China had enough smartphone penetration. So, all the technology that Jenny mentioned, could happen on a much bigger base across these users, and that really changed the dynamics of this category as a startup and investment category. So a lot of time, timing infrastructure are key to making good investments and starting good successful startups.

Jenny Lee

No, absolutely. And I’ll just add that I think the fundamentals to kind of education 1.0, which is still the prevalent mode of education today, is that, you know, you have a school, right, you have a physical location, and then you have teachers, the teachers could be celebrity teachers, or they could be tutorial teachers. But by and large, those were the main piece of the business model, being able to find good teachers, and then having the right location, I think that would still be one mode of delivering this learning, basically, when you talk about younger children, elementary, middle school, and high school and even colleges. But I think with technology as a key disruption, it’s allowing this new bunch of startups to not think about how do you disrupt, how do you have fewer teachers so that you have more consistent, reliable service education content that can be delivered to a wider audience. And then in the kind of virus landscape, it’s even more relevant. How do we now get away from over reliant on the offline vocation? It’s a skill issue, it’s also an access issue over time, do we want to be kind of stuck to that. So a lot of the companies today work to resolve or lower the reliance on this tool, and therefore,  having the right devices proliferation out there, where everybody has kind of internet, in their hand, becomes a great enabler to the growth of the sector generally. Yeah,

Rita Yang  

The COVID situation, definitely have helped EdTech companies to increase adoption, lower their CAC. So what are some of the trends you think will stay after this blows over? I know, it’s gonna be a long time before it actually blows over. So, what are the long-term consumer behaviors that you think will come out of this? And how can companies leverage that?

Jenny Lee 

Yeah, so I think that the trend has started, this few years in terms of, you know, can I get online? Can I get better content online? Can I get better service? Can I get better teaching service online, that’s been going on for a while. What the virus situation did is actually not to reverse this but to accelerate this, where you are ready a parent who’s using online apps and services for your kids, this will not change, I think it would just reinforce the ease and flexibility on how you can continue to have the services for themselves and for their kids. I think the biggest change is for users or parents who’s been resistant initially, they may still want to have their kid at the childcare, they may still want to have their kid away in school, so they have some free time. I think that type of behavior would be now complemented with the fact that if they had the chance to try online, then that habit change may result in them buying more services. So maybe beyond core classes, tutorial classes, we have seen that it will spread to more categories. Can you do art and craft online? Can you learn music online? So, areas where you feel like you have to bring the kid to a community and learn drawing together. Now it’s moved online. So, I think the happy change is a little bit more subtle, definitely long term. But I think it’s going to extend into more of this learning categories. Can you do belly dancing at home by yourself, versus saying have a bunch of kids at the studio. So, I think that’s where the change is happening, it’s zero to one type of change a bit more gradual, and then crossing into more verticals.

Rita Yang  

A follow up question on that is that when a lot of EdTech company got started, they’re actually surviving between a lot of giants who are also entering the space. One of the arguments I’ve heard people making is that YouTube is actually an EdTech company, given how many people watching the tutorials online. And also with DingTalk, Zoom became the infrastructure or the tool that a lot of schools are adopting. How do EdTech company startups think about the space that they are in, how do they know that they have a product market fit so they can grow as an independent business?

Jenny Lee

For EdTech companies, based on what we have seen today, they don’t win because of one area. They don’t win because they have content. They don’t win because they have technology to bring content online. Actually, that’s the most important. They also don’t win because they have the best teachers that they can recruit online. I think they win because it’s a holistic model, The ones that we have seen in China, it tends to go towards more service oriented. So the tech companies, they don’t just do one piece, they do everything. So for example, if they are targeting language learning, say for English, then it’s about, can they innovate on content, can they make this content, part AI and part avatar, and then with the right teachers to come in, during that learning process, along that learning process, they have coaches or builders, who’s helping the student to review the course material after class. And that’s the surface element that needs to come in as well. And in some companies, they have discovered a way to have a free tool in the case of Zuoyebang, for example, a tool as a homework assistant, they’re able to acquire users. So in that sense, it’s not a single point, barrier, that if you have this, that’s the home run, where you’re going to be the largest education company, where we’ve seen is that it does require cross functional capabilities and abilities across content, across service, across operations. And then of course, in the front end, customer acquisition. So, can the large companies come in? I think they can, and they will try because this is a category, if you think about YouTube, it’s just one format, so YouTube’s format is mostly recorded video, where you can asynchronously download the video on a one to one basis to learn. So, it’s a self-learning mode, is asynchronous mode. But whether adults or kids, they learn in different formats, so maybe in that category, it will fulfill one piece of that learning requirement. But if you’re looking for life, live classes, live streaming, where you’re seeing the speakers that may require different types of ability to get the celebrity speakers, to coordinate time and then have  X number of people online to consume the classes. So again, then that’s where you have tech coming in, you have celebrity speakers coming in, and different webinar format. And then again, as we mentioned,  when you start to get into verticals, beyond language, you have math, you have physics, you have art and craft, and then you have music, that’s where the domain expertise needs to be there as well. And so it’s not just about internet company, or huge internet giant saying, Oh, I can also offer art and craft, it’s a little different. So, the curriculum is different. The class format is different. If a company only does one large class format, that may work for a particular area, but it may not work for all areas. For example, for kids, it’s hard for three to six years old to see through an hour of one to 1000,  but they may work better in a one to one format, they may work better in a one to four format, where there’s some interaction with the computer avatars, but then there’s also handholding where the teachers can come and say, Hey, come back to the screen. So again, it’s actually a very complicated business model that cuts into quite a lot of abilities. And is this a winner take all? I would say no, just because of what we talked about different age group, different requirements, different curriculum, and then different types of delivery format. And so, we do feel that in each of these potential categories, there could be leaders, just like in the real world. When you have a kind of offline well, when you have all the different schools, in China, you’re Tsinghua and Peking University, and you have Jiaoda, why not all called one school? There’s just different focus, different specialties. It’s also different culture, different kind of service element as well. So I think that would also extend into this new world of startups where I think it’s a huge market. You look at China, K 12, goes to 200 million addressable students. If you look at India, it’s like 300 million, right. So, you are talking about a big market with very diverse needs. And therefore, I think the sector can sustain and hold several 10 to 20 billion market cap companies.

Hans Tung 

Right. I think that’s a very important point, because it could be divided with different format for different usage cases, the home market has to be big enough for these individually focused format to really take off and be big, so only maybe US, Europe, India, or China, maybe in parallel Latin, and Southeast Asia, either have regional or national place where addressable market is big enough. Otherwise, in smaller markets, you got to be able to have ability to execute and have different formats within one holding company in order to build a sizable outcome. So, when someone just want to be inspired by the model from China or US, this has to be put in context as well.

Rita Yang  

So, you basically need to have enough children that taking classes for the market to make sense, right?

Hans Tung 

And the parents’ willingness to spend that kind of money. So even India, which GDP per capita is lower. But they decide to spend money on education so strong that we were very bullish on EdTech in India, and also in Indonesia as well.

Jenny Lee 

Yeah, I think when you talk about children, they definitely will be bounded a little bit by geography, and also regulation. So, education is actually one of the very important initiative in any government. And so regulation would also means that curriculum may be more tailored to each country. And so you know, companies that can offer the services may need to be licensed. And so it does have a bit of that moat as well, from a geographic perspective, especially when it comes to young adults or children, when it comes to like adults, when you think about that learning, and we talked about your YouTube learning, in that sense, when it’s a bit more generic, or even specialized content, topical content, but for the adults, I think, then those models potentially has a better chance of globalizing because if you are trying to learn sales techniques, I think, it’s the technique itself. That’s like, presentation skills, right. So I think those are more scalable, kind of across geography, language, you can just do different language localization. So I would also break that into different kind of age group and target profile as well in terms of their ability to either be a global company, or super big, local company in that sense.

Rita Yang  

So GGV actually has a really diverse set of EdTech portfolio. As you mentioned, Jenny, there’s software solutions for childcare in the US, we also have K12 learning apps in India. And when you evaluate new startups that you’re looking at in that space, how do you think about the end game? Because as you mentioned, there’s the total addressable market versus the ability to go global. How do you think about that?

Jenny Lee 

The end game, obviously, super unicorn that has great brand awareness and excellent service, because it’s education. So, you do want to do good. This is a great sector because at the end, you make money and you do good. And the better you do, the better you do, so I think that’s kind of the end game, where we do look at companies in terms of evaluating them. This is all about disruption. So, as I mentioned, I think the traditional model still works. New Oriental and TAL will continue to be strong, because that need is still there, whether it’s after school tutoring, or English learning, where there’s a need for that human interaction. So, what we’re looking for in companies is founders’ ability to create new products, so  they have to think out of the box. What is interesting is over the years, people would think, is it education first, or is it tech first. And in the first wave, there were a lot of startups started by kind of teachers, be negative here, what we’ve found is that those hasn’t worked that well. I think if you come at it as more of a teaching, the emphasis tends to be more just curriculum, over time, it’s not a long-term advantage. So, the ones that have actually worked very well are cross vertical CEOs, the companies that we have seen, for example, Zuoyebang CEO came from Baidu, more tech background, Huohua’s CEO was the CTO of his previous startup. So, these are internet entrepreneurs, they understand what it means to use tools and services and software to attract a huge user base, the freemium model works for them, the product centric feature rich app works for them. So they think internet and through that they are able to then destruct the traditional sector allows themselves to get a head start to create that first, batch of users. And then of course, because they are still education go back to the service part where you have to make sure your operation, your service is growth in line to support the users as they go from free to pay users. The other angle that we’ve seen is technology enhanced, latest investment in Europe, that one completely takes the lab out of the school. And in that sense, it’s using innovative technology to recreate the entire classroom, the entire lab. It’s something that traditional teachers or educators may not think of, because they are so used to saying, Okay, I need to kind of feel in touch. And so, I think that’s the other angle, the first angle is more of the product sense, the feature sense, the acquisition part. The second part is, we have seen founders who commented, they are not, in the education sectors, they are technologies. And they are the ones who’s coming out with very interesting products. With that they can build early competitive moat. So when the model starts to churn and run around, the bigger guys will take some time, and traditional companies may not have the DNA, even if they want to copy the product. So, I think that’s what we have seen over the last couple of years, is that the evolution of even those early startups, you can start to see kind of that profile of a winning team or winning company.

Hans Tung 

What genius products are very, very important points. Traditional education companies tend to focus on user experience at the local level, because you’re bounded by the teacher at specific locations. So, they care about how to scale and maximize the utilization rate of those teachers there. There may be some learning between teachers but tend to happen in a local environment. So it favors big cities where you have more teachers, good teachers to draw upon the pool you’re drawing from, and when a company is started by founders who have internet background, they understand how the distributed resource online on a broad level, so that a good teacher have a chance to teach thousands of students across the country or across a region. And the impact of the teachers is really heightened. So we democratize the access to quality of good teachers. And internet companies understand how to build a product that iterate fast to listen to students, and parent feedback to make that experience better and faster than a traditional education company without an internet background. So it’s complete different clock speed of how these companies would innovate at a certain point and what Jenny’s mentioning, I think, by the time this podcast is released, we would have announced our investment in Europe, the first one EdTech in Europe, the company called Labster, it leverages a Unity game engine based approach to build a kind of VR enhanced learning environment, like Jenny said to replicate in power lab, it’s not experience without the cost of building a new science building on campus, so that a lot of students can have a very good lab experience across all science subjects, then the power of technologies utilized as a way to make the learning even more interactive, and become even better. And suitable questions can give more feedback in more variety of ways to make sure that their learning quality is higher and quantifiable, it’s replicable. So, it’s just amazing to continue to see technology being used in a way that it’s beyond the imagination of traditional educators, because we’re not exposed to that technology, you don’t know what’s possible. So, we’ve seen disruption caused by people who love education, but come from a technology or internet background to do this in a way that’s going to be quite interesting and disruptive.

Jenny Lee  

But just one more point. I think the interesting thing is that while we are talking about two groups of people, traditional educators, and  the tech entrepreneurs, actually this world is colliding and converging as well, I think in today’s virus world, the educators are forced to learn very quickly, right, where they may be averse to assimilated labs, or a after school AI tutor for the student. Today, it’s all about tech, because when schools are close, when the infrastructure that cannot support continuing to educate their kids. They are moving faster as well. So I actually think that on that front, the adoption of a lot of this new technology and service model in the schools it’s gonna go up. Countries governments are pushing forward with this budgets are being recast. And I think traditional educators just like parents, when you don’t want to send your kids to online class, you now have to. So that’s a habit change. I think similarly, as well in traditional public schools, that system is also being pushed forward, maybe, you know, a celebrated as much as you know, three to five years. So, I think that’s why this topic, or the sector is now getting its day in the sun, which is good.

Rita Yang  

Yeah, I think one of the observations that I’ve made by looking through our different EdTech portfolio is that it’s not just moving traditional education from offline to online, it’s more about leveraging technology to disrupt the education experience itself. So, as an EdTech startup founder, how do I know that what the problem I’m solving is a painkiller versus a vitamin? I guess that’s a question a lot of product manager have to ask as well.

Jenny Lee 

I think with any adults, you take both painkillers and you take vitamins. So, I wouldn’t discriminate between the two, though I think it’s important that founders do need to identify, I think painkiller be one where they are grades involved. If I were to define it, they’ll be grades involved. That’s a tangible, measurable outcome that the consumer or the end user wants, if the end user is a kid, they want to improve their grades, if the end user is an adult,  they want to make sure after taking this, they know how to program or they can get a job. So I would say that, if you’re creating a product that can address a very measurable and direct result, then it’s like a painkiller. Because it’s a pain that needs to be solved. Typically, this pain point is very structured, it’s getting through your grade six or nine, or getting into college, it’s getting better scores as TOEFL scores? So, I think that’s one. But on the other hand, I think that we started talking about this as learning, learning is lifelong learning is in small bits and pieces over time. And it could be likened to playing little mobile games when you have time, right, like when you’re on the subway, maybe you should listen to a podcast, listen to GGV podcast, you can learn about the entrepreneurs world. So that’s the other part, those are vitamins. But the business model is different So typically painkiller type of a product has a defined time frame, you need to get this result delivered within the quarter, within the year because they’re taking exams, they’re taking tests. The vitamins once are the frequency of usage may be high, but the bite size may be smaller. And if we convert that into business, economics, that’s the difference between the two that we look at, so the vitamin type of model may be lower ARPU for user but longer LTV over time, higher frequency of use, higher frequency of payment, then the time spent may be three minutes, two minute smaller in terms of time duration. I think the painkiller type tends to be course, right, like a classroom courses, fixed format, that you have to go online at a fixed time. If it’s live streaming, you have to be guided through a series of courses to elevate your skills. So slightly different, I wouldn’t say any is bad. I think that for founders, they need to go in understanding what type of needs they are trying to address. And with that, what we look at is, does the matrix look make sense. If you know that you’re delivering a long lifetime vitamin type, then it’s about widening the funnel, your acquisition cost method has more efficient than other startups, and we will look beyond into the operating matrix to see if in this case, then the product market fit and the model fit is fine. So, we welcome all startups either trying to create the next painkiller or the next new vitamins to come talk to us.

Rita Yang  

As long as they have the right set of business model fitting into that.

Jenny Lee 

We’re willing to work with you, I think we have seen a lot with the team and the vantage point that we have, not just from one region, right China, US, Southeast Asia, India and now Europe, we realized that the front end is not that much different,  but the back end model, how to deliver can be quite different because of what we mentioned, low localize consumption, regulation and things like that and channels. We are  also happy to work with companies which have the want to expand beyond their current scope,

Rita Yang  

Can you actually give us some examples of how our global footprint in EdTech that have helped us either identifying the right startup for new market, or helped our existing portfolio grow beyond their current market? Maybe we can start with hands on that.

Jenny Lee 

So actually, what do you think about Vedantu in India, that’s a classic example of how the China experience has actually drawn the CEO to come talk to investors in China at tech startup as well, I think potential is actually a very good case.

Hans Tung 

Yeah, I will take a different twist on Rita’s question. I think it’s helping companies of scale, it’s not just helping them to expand geographically, a lot of times it’s helping them to learn from other people’s experiences, both positive and negative. China obviously had a benefit of the US internet space in the 90s, and 2000s. And now we’re seeing other emerging markets like Latin America, Southeast Asia, and India, in particular, learning from Chinese investors and Chinese startups in a variety of spaces. EdTech is definitely one where China has the biggest education market in the world, it has the biggest market cap of education companies listed publicly traded in the world. And therefore, this becomes very natural for founders from these regions, emerging markets come, in the case of Vedantu, they’re extremely impressive to us as how fast and hungry they’re learning from China. So we’re just extremely impressed with Indian founders, their willingness to learn in the speed that they’re learning. And we’re happy to help because we think that when ideas can be more global and shared, everybody gain appreciation of each other more in the process.

Jenny Lee 

I think it’s a little bit more about other companies in other regions learning from China. I think, as Hans mentioned, when we look at our portfolio companies, I think Chinese EdTech startups are the most innovative, It’s a Chinese culture that learning is the most important thing you can ever do for your kid if it’s the one thing you could do. So, I think that the willingness to spend, the willingness to experiment is very, very high. So, over the years, with the convergence of internet, founders are moving on to the second startup, they also come in with a lot of ideas from gamification to enterprise sales, content management, and they are leveraging all that in converging EdTech. And so, the models, the technology in China has just been forerunners out there. It’s not about Chinese companies going out of China, today, the market is very big. If you’re doing English learning, you can go into Chinese learning, you can go into math, like there’s a lot of categories they could expand, then they can go up down the age group. So, I think there’s still a lot in China for a lot of companies to digest. And at the adult level, they may have some apps that they distribute globally, but by and large, I would say 80, 90% the focus is how do I become number one in China, because that is like the golden goose, the big market. And in Indonesia and India, they are in that learning mode. So, whether it’s Vedantu or Ruangguru in Indonesia, the founders have all traveled many times, maybe not recently, but past to China to learn from what’s going on there. Then they go home, and they localize it for their model. So it’s a bit more at that stage that we see versus Chinese companies now want to take on the wall, I think this is one way if they take on China alone, it would be very, very interesting. And we’re starting to see US companies also having that dialogue. And of course, you know, the Europe startup as well is selling their products internationally. So I think in that sense, that’s the rest of the world is more global sort of perspective, China itself is just tackling the China question. But the model expertise, I think it’s being learned overseas.

Hans Tung   

It’s very important that a lot of people also have this misconception, especially in the EdTech space, that China is a big market. And it blocks US companies from entering, and therefore, Chinese companies end up doing very well. People from outside tend not to know that when you have third fourth generation of founders doing this for the second or third time, the learnings that they have from interdisciplinary environment from other sectors proven successful, whether it is in gaming or as in the internet space, how to scale a consumer business, and then learn how to leverage tech and enterprise SaaS to build a product that’s more robust and can be more focused and targeted in delivering value to a specific set of users. All of that gets compacted in building new things into the tech space. Other countries simply haven’t had that chance to have so many iterations of experiences from different sector, all happening at the same time. And it takes time to comes up with innovations, other founders are seeing other emerging markets are benefiting from the fruits of the wisdom. But sometimes people don’t understand nor appreciate how actually this happened in the first place. And hopefully, through podcasts like this, people can know more about it. And I think that it will also inspire other founders to learn how to do this interdisciplinary approach of building better product and give more value to users.

Rita Yang  

Thank you. So maybe one last question to wrap this up. What is one thing that you hope that EdTech founders have already knew before they came to you? Second question is, what is the big bet you’re currently making in the EdTech space?

Jenny Lee

Well, so I think when founders comes to us, it’s not very different from other deals, We do want them to really be able to articulate precisely, what pain point they are trying to solve. And to your earlier question, it’s your product a painkiller type of product, or is it a vitamin type of products, and then come to us with the right numbers. If they are only in seed, and it’s just idea, final numbers. But I think if they are starting to monetize, then, as I mentioned, this is a pretty complex sector. It cuts into so many different areas of operations services, we want to understand the model. And it’d be great if the founders comes in, with the right model. What’s the unit economics? What’s the cost retention? What’s the renewal rate? What’s the referral rate? What’s your ARPU? So this is a sector that also very numbers driven. And it’s all about that finesse of it. If the model is not perfect yet, we can help it understand it. But coming in and not knowing the numbers, I think would set a very bad impression. For us, we’ve seen a lot we can help. But we don’t think the first thing is that the CEOs need to understand their own business well when they comes to talk to us.

Hans Tung   

Like Jenny said earlier, if you’re in the EdTech space, you’re doing good. So if you know your numbers, your model, you want advice to help you to scale, we’re happy to help. So ultimately if you’re delivering a deficient user experience, and users are benefiting from being smarter, wiser, more prepared, then over time, when you’re doing good and country building in the right way, the outcome will always be much bigger than you anticipate. I will always remember our example of investing in Alibaba, before SARS in $180 million valuation and see them launching Powerball dominance, ours ends up becoming a $600 billion company 14, 15 years later. It’s just amazing to see that kind of good and impact one could make if you have the right product market fit and you aim to do good.

Jenny Lee 

Your other question is the next big thing. So, the holy grail in education when we started saying it’s their two biggest pain point. One is relying on school’s physical location, and to relying on teachers. I think relying on school you can address with current technology, bring It online, mobile live streaming, asynchronous recorded, all that stuff. The second biggest thing how do you replicate high quality learning experience consistently, and make it available to the masses, right and also have this customized because learning is a very customized experience. Some people learn faster, slower, some are more graphical, some are born number driven. So, the holy grail here is general AI. Which startup can create elaboration of AI technology, so that you have the super learning teacher who can answer all question in the universe.

Rita Yang 

It can be everyone’s best teacher who knows exactly where they are.

Jenny Lee

It’s like Skynet for learning. I think of all bots and space and everything. But that’s why I love this space. Because it has this do good, current value creation. And then he has this forward looking what’s out in in the next EdTech sphere. So I think that’s the holy grail, but it’s gonna take a while, because general AI applied like that, basically creating a superhuman that has all the intelligence combined. So I think that’s the ultimate where we are looking for, we’re willing to break that dream into different parcels, maybe in curated space, like math, and like physics, chemistry, we start there first, because we can scope those answers. So the psychological, philosophical questions, maybe it has to take kind of line up for the next. That’s the ultimate. And so that’s where we are spending time, we actually have a new deal in the discovery fund, that’s starting initial step, to kind of do that within the math space. So, I think a little step, hopefully, the whole picture can be drawn in our lifetime.

Rita Yang  

Thank you for being on the show, Jenny!