Exclusive: Backed by China. Flagged by the Pentagon. Still, Arizona Chose ClassWallet.
The Arizona DOE under Kathy Hoffman contracted with ClassWallet despite Pentagon-flagged ties to CCP. Now parents face delays, fees, and silence. Was anyone paying attention?
Concerns over ClassWallet continue to grow—from excessive fees and reimbursement delays to system outages and now, questions about its foreign investment ties.
New concerns are surfacing over the background of Arizona’s ESA vendor ClassWallet. The tech company that contracted to manage ESA funds, accepted early funding from Sinovation Ventures—a Beijing-based venture capital firm with documented ties to the Chinese Communist Party and to companies sanctioned for human rights violations and Chinese military involvement.
ClassWallet received funding twice from Sinovation Ventures—even after the U.S. Department of Defense flagged the firm as part of China’s ‘technology transfer strategy’ with ties to Chinese government sponsorship. The Arizona Department of Education had a duty to vet ClassWallet before awarding the contract. Were these red flags missed or ignored?
Key Findings In This Report
ClassWallet received early funding from Sinovation Ventures, a Beijing-based venture capital firm tied to the Chinese government.
Sinovation was flagged in a 2018 U.S. Defense Department report as an example of China’s “technology transfer strategy,” with direct government sponsorship.
At least two Sinovation-backed companies, were placed on the U.S. Entity List for Uyghur-ties and Chinese military modernization.
Sinovation’s limited partners include Chinese state entities, such as the Xiamen Municipal Finance Bureau, which invested $68 million.
The Arizona Department of Education paid ClassWallet over $3 million in fees in 2023 alone.
State 48 News has requested a PRR for the following: all evaluation materials, scoring sheets, committee memos, and vendor recommendation documentation related to the ClassWallet ESA contract RFP conducted by ADE in 2018–2019 under Superintendent Kathy Hoffman.
SOURCE: GROK
Arizona’s ESA program has become one of the largest school choice systems in the country, with hundreds of millions of taxpayer dollars flowing through private hands. ClassWallet, the financial gatekeeper for these funds, operates with limited public oversight into its ownership or foreign financial backing.
To date, there is no public record that the Arizona Department of Education (DOE) under then Secretary of State Kathy Hoffman evaluated or disclosed Sinovation’s investment history when contracting with ClassWallet.
Since then, ClassWallet has become the exclusive vendor for Arizona’s ESA program, managing accounts for more than 88,000 students. In 2023 alone, the Arizona Department of Education paid over $3 million in administrative fees to ClassWallet, according to public expenditure records.
The Common Sense Institute summarized the legislative history of the ESA program and the rationale for contracting a third-party administrator like ClassWallet. The contract with ClassWallet was finalized in 2019 under Hoffman.
SOURCE: COMMON SENSE INSTITUTE OF ARIZONA
As the head of the Arizona Department of Education (DOE) at the time, Hoffman’s office would have had a duty to vet all vendors—including reviewing financial backers, data security protocols, and any potential foreign influence—as part of Arizona’s procurement standards. This process typically includes internal evaluations, scoring rubrics, and risk assessments to ensure taxpayer dollars are safeguarded.
Of particular concern is that ClassWallet received early-stage funding from Sinovation Ventures, a Beijing-based firm identified by the Pentagon in 2018 as part of China’s “technology transfer strategy” and flagged for its government sponsorship and investments tied to surveillance and military modernization.
State 48 News has formally submitted a public records request seeking ADE’s vendor evaluations and internal communications during this procurement process. The goal is to determine whether these national security red flags were known, ignored, or never assessed.
Ties to Arizona’s ESA Program
In April 2016, Sinovation Ventures invested in ClassWallet through its U.S. affiliate, Idea Bulb Ventures, as part of a seed round reportedly ranging from $1.5 to $5.63 million. That same month, ClassWallet announced it had closed a $1.5 million seed round led by Idea Bulb Ventures, bringing its total funding to approximately $4 million. Other investors in the round included Techstars Ventures, William Guttman, and several angel investors. According to the company’s press release and statements to EdSurge, ClassWallet was founded in 2014 in Miami and had expanded its customer base by 400 percent in 2015, with similar growth expected in 2016.
SOURCE: PRESS RELEASE
Idea Bulb Ventures was the lead investor in the round and served as the U.S.-based investment arm of Sinovation Ventures at the time. The firm was previously associated with Sinovation’s earlier name, Innovation Works. According to Pitchbook, Idea Bulb Ventures was directly tied to Sinovation Ventures during the period of ClassWallet’s early funding.
SOURCE: X
According to PrivCo, Sinovation Ventures was the lead investor in a $1.5 million equity round for ClassWallet in April 2016. PrivCo also noted that Angela Bao was involved in the funding round, though her exact role was not specified. On her LinkedIn profile, Bao described herself as an edtech startup advisor and coach and listed herself as a former investor at Sinovation Ventures. She also stated that she served as an investor and board observer for ClassWallet from 2016 to June 2018.
SOURCE: LINKEDIN
Sinovation Fund IV: A China-Based Tech Fund
Warning: this section gets in the weeds but here is a cheat-sheet from SEC, Form 9, Filed 3/30/2018 that listed key persons in the Sinovation network.
Sinovation Fund IV was a $500 million venture capital fund launched in 2018 by Sinovation Ventures, a Beijing-based investment firm co-founded by former Google China president Kai-Fu Lee. This was the firm’s fourth U.S. dollar fund, focused on early-stage tech companies in sectors like artificial intelligence, education, digital media, and telecommunications [PitchBook].
According to an official filing with the International Finance Corporation (IFC), the fund was “China-focused,” with plans to invest mainly in businesses based in Greater China—or in foreign companies whose products and services could be transferred there [International Finance Corporation].
The fund was managed by Sinovation Management Limited, with Kai-Fu Lee and Hua Wang as the managing partners [International Finance Corporation]. In a 2018 column, Lee explained that fundraising was faster than expected. “We met our goal in less than a week,” he wrote, describing how several major investors signed on before the firm even began official fundraising. [Pan Daily].
According to Pan Daily, the fund officially closed at $500 million—above its initial goal of $300–$400 million. At the same time, Sinovation launched a separate fundraising round in China, aiming to raise 2.5 billion yuan (roughly $393 million) for its third RMB fund.
The five largest General or Limited Parters to Sinovation Ventures were Chinese State Government Entities or involved with Government and Party Controlled Entities. According to The Wire, Many of Sinovation Ventures’s limited partners “are Chinese government entities,” and “the vast majority of its investments have been in China.”
SOURCE: THE WIRE
Sinovation Faced Scrutiny for Chinese Government Ties By DOD - But Arizona Contracted With Them Anyway
A 2018 U.S. Defense Department report on China’s Technology Transfer Strategy specifically cited Sinovation Ventures as a notable example of how Chinese VC-backed investments facilitate access to “the crown jewels of U.S. innovation.” The report described Sinovation as government‑sponsored, highlighting that it received awards from China’s Ministry of Science & Technology and the Beijing Municipal Science & Technology Committee, where it is headquartered .
You can review the full report, which the Kansas State University archive hosts here.
According to The Wire China, many of Sinovation Ventures’ limited partners are Chinese government entities, including the Xiamen Municipal Finance Bureau, which reportedly invested $68 million. The firm, rebranded in 2016, manages $3 billion and has backed over 400 companies, mostly in AI and internet sectors. While it briefly opened a Silicon Valley office in 2013, the vast majority of its investments have remained in China. More than 20 of its portfolio companies—such as Meitu, WeRide, Megvii, and Mobike—have reached billion-dollar “unicorn” valuations.
The Wire wrote, “If you just look at the Sinovation investment portfolio, it’s kind of a who’s who of successful companies in China.”
Sinovation Ventures has invested in at least two companies later sanctioned by the U.S. government for national security and human rights concerns. One of the most notable is Megvii, a Chinese facial recognition firm valued at over $30 billion. In 2019, the U.S. Department of Commerce added Megvii1 to its official Entity List, citing the company’s role in enabling surveillance and repression of Uyghur Muslims in Xinjiang.
According to The Wire China, Sinovation first invested in Megvii in 2013 during its Series A round and continued in follow-up funding.
At least one other Sinovation-backed company has also been added to the Entity List in recent years, this time for supporting China’s military modernization efforts.
These designations underscore why national security experts have raised concerns over Sinovation’s influence—and by extension, the early funding it provided to U.S. education vendor ClassWallet.
Arizona’s ESA program was built on the promise of empowering parents and providing flexibility in education spending. But as billions in taxpayer dollars now flow through digital pipelines managed by private vendors, questions of transparency, due diligence, and foreign influence can no longer be dismissed.
ClassWallet’s early financial backing from Sinovation Ventures—a Chinese firm flagged by the U.S. Department of Defense for aiding China’s technology transfer strategy—should have raised serious concerns. Yet no public evidence has surfaced that the Arizona Department of Education under Kathy Hoffman ever flagged, questioned, or disclosed these ties during the procurement process.
With student data, public dollars, and national security at stake, the state owes parents, educators, and taxpayers clear answers. State 48 News has submitted public records requests to uncover whether proper vetting was done—or whether red flags were ignored.
Megvii Technology Limited was added to the U.S. Department of Commerce’s Entity List on October 9, 2019, under the Export Administration Regulations, for its alleged role in the surveillance and repression of Uyghurs in Xinjiang. It remains on the Entity List as of 2025, with no evidence of removal. However, Megvii was reportedly removed in early 2024 from the U.S. Department of Defense’s separate Section 1260H list of “Chinese Military Companies,” a designation distinct from the Commerce Department’s export restrictions.