Why We Invested in Principia

April 05, 2023

Valor Capital is proud to announce its investment in Principia, a fintech focused on the Education industry in Brazil.

Founded by Newton Maia, a seasoned investor and executive in the field, Principia is building a vertically integrated financial platform that helps private universities reduce student dropout rates and improve their cash flow predictability.

The education industry is a massive market prone to disruption, yet both students and universities still face financial challenges.

Education is a critical component of any economy, and Brazil is no exception. With over 55 million students enrolled in basic and higher education, the Brazilian education industry is a massive market worth over $40 billion in tuitions.

In higher education, which accounts for 16% of total students in the country and 35% of the total tuition volume, the private sector corresponds to 77% of enrollments. With an annual growth rate of over 3.5%, more than 7 million students are enrolled in over 2,000 private universities in Brazil.

Since 2010, over 2.5 million net new students have been added to the system. This growth was mainly driven by critical factors such as increased government-backed education programs (i.e., FIES and Prouni), private scholarships, and technological advancements in distance learning systems. However, although these factors have lowered tuition costs and increased access to education, there is still significant room for improvement. According to OECD data, only 21% of Brazilians aged 25-64 hold a college degree, compared to 50% in the US (gap of 33 million potential students). In addition, only 18% of young people aged 18-24 enroll in universities, indicating a need for further efforts to increase access to higher education in Brazil.

Apart from the challenges of low enrollment and education inclusion, the Brazilian higher education system presents several financial hurdles for both universities and students.

Challenges faced by universities:

– Private universities, especially small to medium-sized institutions, which currently represent 65% of the total tuition market, face significant obstacles in managing their cash flow and accessing working capital. The lack of cash flow predictability presents a major challenge for these universities, affecting their operational efficiency, financial performance, and strategic decision-making capabilities.

– Moreover, many universities offer courses and tuition on a buy-now-pay-later basis without credit engines or risk control systems, potentially causing delays in student tuition payments. Consequently, managing cash flow can become even more challenging, making it harder for universities to predict when they will receive their funds. As a solution to the problem, private universities frequently offer discounts to students who pay their tuition fees on time or take on expensive debts, which can further erode their financial performance and compromise net margins.

Challenges faced by students:

– Students face significant financial obstacles when pursuing higher education. In Brazil, for example, only 36% of students who enroll in a bachelor’s degree program complete the program and graduate, with most of them citing financial reasons as the primary cause for dropping out.

– Also, many students from low-income families have limited access to financing sources, making it highly challenging to pay for their education upfront. This can cause significant stress and anxiety for students, as they may need to take on multiple jobs or work long hours to pay for their education, ultimately leading to high dropout rates.

Overall, the Brazilian education industry has immense potential for growth and innovation. However, the need for more access to financing options for the students and the absence of a seamless financial solution for private universities remain critical challenges.

Amid this backdrop, Principa was born to help solve some of the most critical financial problems the Brazilian higher education market faces.

Why we invested in Principia: A powerhouse platform backed by a top-tier team and product, fueled by a strategic M&A

Top-notch team with a vast experience in the education space

– Newton Maia, Founder and CEO of Principia, is an accomplished Aeronautical Engineer who graduated from ITA and later did his MBA at Harvard Business School. He began his career as a Business Analyst at McKinsey in 2001 before joining Advent in Brazil. At Advent, he successfully deployed hundreds of millions of dollars in the education sector, having experienced some of the most significant changes in higher education. Newton served as an operator for three of Advent’s portfolio companies, including Kroton, Brazil’s largest education company. During his time at Kroton, he served as a Board Member for over four years and as interim CFO, gaining invaluable insights into the financial complexities of university management, including cash flow management and working capital optimization. Newton has developed an extensive network of experts and thought leaders in the higher education ecosystem, making him a respected authority in the market.

– Also, Newton led successful restructuring processes at Atmosfera, an industrial laundry company with over 4,000 employees, which, under his leadership, was sold to a strategic buyer. Later, he joined IMC (International Meal Company), a publicly listed Brazilian company, first as a Board Member and then as CEO. During his tenure at IMC, Newton led a team of over 10,000 employees and implemented a comprehensive business restructuring. This included revitalizing and reigniting growth for the group’s two major brands, strengthening the brand portfolio by adding new brands, and increasing the number of stores from 254 to 481 by the end of last year.

All in one platform offering a vertical SaaS solution for private universities:

– Principia offers an innovative platform that provides a seamless, affordable, and customized vertical SaaS solution with integrated financial services designed to better serve students and private universities’ needs. While Principia helps students access better economic alternatives to finance their studies – reducing dropout rates afterward – it also helps improve universities’ cash flow predictability.

– Principia’s solution focuses primarily on managing collections and tuition billing to help universities eliminate cash flow volatility. Additionally, the platform provides students with a customized and flexible payment experience, ensuring that universities receive payments on time.

– The product core component counts with intelligent and automated billing and collections, payment flexibility, and student financing options. It also offers receivables anticipation and monitoring, finance management tools, banking conciliation features, and a customized CRM for students. Moving forward, we envision Principia as a full-stack platform offering working capital solutions for private universities and multiple other types of educational institutions.

– In a nutshell, Principia’s integrated solution is deeply embedded into the universities’ routine, making it a sticky and the preferred solution for Brazilian private colleges.

4IES Acquisition – Boosting Principia’s growth even further

Principia is thrilled to announce the acquisition of 4IES, a fintech company that offers a unique Revenue Guarantee product to universities in Brazil. This acquisition marks a significant step forward for Principia’s growth and expansion in the higher education market.

The acquisition of 4IES brings a high-caliber co-founder, Diogo Fonseca, to the Principia team. Fonseca has ten years of experience in the Edtech space, having held senior operating and commercial roles at PraValer and Quero Educação.

The partnership between Principia and 4IES creates a powerful synergy that consolidates Principia’s leadership in the market. With two highly experienced teams in the education and technology sectors coming together, the company is in the best position to offer additional products, such as fee anticipation and financing, to help universities combat student evasion and improve their financial stability.

We are thrilled to partner with Principia alongside our fellow investors at Supera, GFC, and FJ Labs. We are confident that Principia has what it takes to become the go-to financial platform for private universities in Brazil.