Vietnamese education startup Everest Education announced on August 19 it has banked $4 million in a Series B funding round led by Hong Kong-based private equity firm Hendale Capital; the company’s first institutional funding.

Other investors participating in the round included Viet Capital Ventures and the Singapore-based family office Nullabor, among others.

The funding came just a month after its competitor, Yola, raised a $10 million round from Kaizen Private Equity (Kaizen PE) and two months after the investment by Navis Capital in the Thanh Thanh Cong Education JSC (TTCE).

Education has been at or near the top of the list for private equity investments in Vietnam. The past year was an exciting period for the domestic education investment market, with many financiers seeking rapid access to large-scale educational brands in the country not only through direct capital investments but also via mergers and acquisitions (M&As).

Investment leverage

Providing Math and English enrichment courses, test preparation materials, university admissions consulting, private tutoring, and camps for students from Grades 1 to 12, Everest Education said it will use this new capital to finance growth in its learning centers to gain a larger foothold in the academic after-school segment.

The company currently operates seven campuses in Ho Chi Minh City. “Everest has the potential to make a significant impact on the rapidly expanding supplemental education space in Vietnam,” said Mr. Henry Lee, Managing Partner at Hendale Capital.

“We are committed to being part of Vietnam’s vibrant growth equity space, and see education as a critical element in the country’s continuing economic development.”

In late July, the Singapore- and India-based education fund manager Kaizen PE invested $10 million in Yola, a Vietnamese English language training (ELT) service provider.

“Yola is our first investment in Vietnam, and we believe the company is poised to benefit from the growth of the ELT segment in the country,” said Mr. Sandeep Aneja, Managing Partner of Kaizen PE.

Thanks to Kaizen’s vast experience, insights, and global network in the education sector, it will give Yola’s management professional expertise and support in order to drive sustainable growth, operational excellence, and market leadership.

“We will work closely with Yola during its exciting growth journey to introduce innovative products, to improve operational efficiency, and to implement the defined organizational structure required for scaling up,” he told VET.

Before Kaizen, Yola had been backed by local PE firm Mekong Capital with $4.9 million in financing in 2017. “The education sector was poised to grow significantly over our period of investment and combined with our experience in education, we saw Yola as a great opportunity,” said Mr. Sjoerd Zwinkels, Deal Leader for Yola at Mekong Capital.

“Yola back then had three centers and we just recently opened our 15th and are on track to achieve the company’s vision of enrolling 500,000 students and reaching 2 million people through education by providing an awesome customer experience and employee satisfaction, and by living our core values.”

In the same year, EQT Partners acquired a stake in ELT group ILA Vietnam. Since then, the sector has witnessed other investments, including million-dollar funding from TAEL Partners in IvyPrep, a $50 million investment by the Northstar Group in Topica Edtech, and Navis Capital’s recent investment in TTCE.

Within a year of receiving investment from TAEL, IvyPrep has opened new campuses and launched new products. “With a vision of making IvyPrep a place that prepares students to study abroad and become global citizens, campuses have been developed to run under a global school model,” said Mr. Truong Hoang Nam, Investment Manager at the Institution of American Education (IAE).

“This change will increase engagement between campuses and students and provide students with a complete learning path from early on.”

Lucrative market

Education has always played a key role in Vietnam’s society and culture. Driven by the local population’s desire to obtain better quality education, the growth rate in Vietnam’s education sector is probably one of the highest in the region.” Mr. Sandeep Aneja, Managing Partner, Kaizen PE  There are strong players in the English language training sector that have been in the market for a long time and we have seen some aggressive new entrants as well. Despite this competition, however, the sector is still fragmented and we believe there is room to grow for companies that provide great customer service and academic quality.” Mr. Sjoerd Zwinkels,  Deal Leader for Yola, Mekong Capital

Vietnam has seen significant growth in the private education sector over the last five years and Mr. Zwinkels from Mekong Capital believes this growth will continue for the next five years. Parents in Vietnam want what is best for their children and are willing to invest heavily in their education.

Consumer research done over the last couple of years shows that Vietnamese are willing to spend more on education than previously. It comes as no surprise that Vietnam spends about 8 per cent of its GDP on education annually.

Observing increasing interest in education from both local and international investors, Mr. Nam said that given the constant change in public educational policy, the questionable quality of mass public education, and the expansion of the middle-income population in Vietnam, the private education industry will definitely have plenty of room for growth in the immediate future. 

However, what, where, and how are the key questions many investors and educational leaders in Vietnam are pondering, he went on.

Even though there is still large demand for ELT services, the interest of parents and students go beyond traditional English learning.

They prefer more add-on services such as soft skills, career orientation, and STEM education, so ELT businesses also have to innovate to cope with new trends.

In that context, Ivyprep wants to shift its focus to K-12 education rather than traditional ELT. “We want to bring our high-quality services and products to provincial areas and not just Ho Chi Minh City and Hanoi, and our newest development is in Can Tho city,” Mr. Nam said.

“We have recorded 95 per cent growth this year compared to last year, and we plan to double that in 2020 with our initiatives around the country.”

“Although public schools still largely dominate the field, private structures have started to emerge over the past few years and are continuing to grow strongly,” Mr. Aneja from Kaizen said.

“As English is the universal language for academic and professional communications, ELT has moved from being aspirational to essential. ELT is therefore a very exciting market that we expect will continue to grow at around 20 per cent annually over the next five years.”

Regarding profits from investment in Vietnam’s education sector, he believes the investment rate of return depends on many factors, including regulations, which are hard to predict.

“Entry valuations may be steep and, therefore, companies need to perform as per the business plan to reach the target objectives,” he said. “We believe that Vietnam will be one of the higher performing markets in the region.” 

Challenges ahead

Though the market still boasts potential, no investment has zero challenges. While benefits and opportunities are plentiful, there remain significant challenges that prevent the widespread implementation of effective education.

The country is still at the transformation stage in approaching new education technology and escaping from traditional methods. 

Mr. Nam therefore sees that culture and conservative mindsets are two key hindrances to technological transformation. “Many parents still prefer traditional methods, so most companies will need to invest in educating the market about the benefits of technology in education,” he said.

“For Ivyprep, we have moved aggressively towards blended learning, merging online and offline models to enhance students’ studies and give parents flexibility in educating their children.”

Similarly, Mr. Aneja sees one major challenge as being resistance to change, which can come from many stakeholders.

“Teachers often see technological experimentation as outside the scope of their job descriptions, while parents still prefer their kids to attend classes rather than spending time in front of a computer screen,” he said. “Sufficient training and efficient communications are therefore critical.” 

He added that teachers should be given adequate, ongoing professional development training to prepare them for the integration of new technology into classrooms.

Parents should be told of the benefits of online learning programs, whether it be convenience, accessibility, or affordability. Other issues that concern parents, such as how to ensure their children’s social-emotional health while adopting remote / online learning, will also need to be addressed.

Meanwhile, technology is no longer such a new concept, so companies are transforming traditional ways of doing business by adopting new and emerging technologies, according to Mr. Aneja.

“However, in the context of education, untested new business models is one of the challenges we have identified,” he said.

“Everybody knows that technological adaptation is important, but we know little about how and to what extent technology should be integrated and change the traditional business model.”

Answers, he went on, are yet to be found to questions such as whether online learning can completely replace traditional classrooms or whether blended learning is the right model to pursue or whether live tutoring will be more effective than content-based learning platforms.

While it will take time to test what works and what doesn’t, Vietnamese companies can learn from and partner with well-established global players with business models that have been proven in their own countries.  

Khanh Chi - Ngoc Lan