China’s Zhangmen Education, which is backed by Genesis Capital and Warburg Pincus, has filed for an initial public offering (IPO) to list on the New York Stock Exchange (NYSE) as Beijing tightens scrutiny on the country’s booming private tutoring industry.

In a prospectus filed with the US Securities and Exchange Commission (SEC) on Wednesday, Shanghai-based Zhangmen did not reveal the pricing of its shares or how many American depositary shares (ADSs) it would offer but set a placeholder amount of $100 million.

A Bloomberg report in December 2020, citing sources, said, Zhangmen aimed to garner $300 million through a listing in the US.

Zhangmen mainly offers personalised online education covering major K12 academic subjects in China.

Earlier this year, China’s Ministry of Education said it would strengthen rules to ensure children’s sleep by limiting online education firms from offering minors live-streamed courses after 9 pm.

A Reuters report last week said that the country was preparing tough new rules to further clamp down on the industry, in an attempt to ease pressure on school children and boost its birth rate by lowering family living costs.

China’s State Administration for Market Regulation fined leading edtech startups Yuanfudao and Zuoyebang 2.5 million yuan ($388,584.9) each in May for misleading consumers about pricing and tutor qualifications.

“Uncertainties exist in relation to new legislation or proposed changes in the PRC regulatory requirements regarding online private education, which may materially and adversely affect our business, financial condition and results of operations,” Zhangmen noted in the prospectus as a major risk factor.

At its hype over the past year, privately held edtech companies in China pocketed a total of $7.8 billion across at least 52 investments, according to proprietary data compiled by DealStreetAsia Research & Analytics.

Despite the uncertainties around heightened regulations on the online education sector, Zhangmen registered continued business growth and significant revenue improvements in 2020. According to the prospectus, paid student enrolments of the firm’s online one-on-one after-school tutoring increased by 43.2% year-on-year to reach 544,813 in 2020.

Its net revenues increased by 50.6% over 2019 to 4 billion yuan ($613.3 million) in 2020, while the net loss reduced almost 32.7% to 1 billion yuan ($154.5 million) last year with enhanced operating efficiency.

Zhangmen, established in 2005, started as a provider of offline after-school tutoring services before shifting its focus to online education for school children in 2014. Its core course offerings encompass one-on-one after-school tutoring services, and small-class K12 after-school tutoring services, which it launched in the third quarter of 2020.

It plans to use the proceeds to expand and enhance its products and services, improve technology infrastructure, and fund marketing and brand promotions, it said in the prospectus.

Big-ticket venture funding

Zhangmen is also one of the few most well-funded edtech companies in China, which to some degree, enabled it to shine through the highly competitive industry.

Before moving towards the IPO, Zhangmen has completed eight funding rounds, among which were three big-ticket investments that amounted to about $870 million, shows its website.

The firm secured over $400 million in a Series F round in September 2020. Its Series E round raked $350 million in February 2019, after the completion of a $120-million Series D round in December 2017.

These transactions attracted a wide range of high-profile investors including SoftBank’s $100-billion Vision Fund; Canada Pension Plan Investment Board (CPP Investments); and The World Bank’s investment arm IFC.

CMC Capital Group, a Greater China-focused equity investment firm; CICC Alpha, a direct investment platform of Chinese investment bank CICC; and China’s $1-trillion sovereign wealth fund China Investment Corporation (CIC), and others also backed Zhangmen’s previous venture rounds.

According to the prospectus, Genesis Capital, a China-focused investment firm led by Richard Peng, formerly head of Tencent’s investment team, remains as Zhangmen’s biggest shareholder with a 15.8% stake. Demantoid Gem Holdings Limited, managed by US private equity (PE) giant Warburg Pincus, is the firm’s second-largest external shareholder with a 10.5% stake.

Zhangmen plans to list its shares under the symbol “ZME.” Morgan Stanley, Credit Suisse, Citigroup, and CICC are among the underwriters of the deal.