DANILO COSTA, CEO OF EDUCBANK, INCLUDED IN WORLD BIZ MAGAZINE - TOP 100 INNOVATION LEADERS OF 2023.
Before creating fintech, Danilo, at the age of 27, left his career in the financial market with the aim of expanding access to quality education in Brazil. He created the concept of full-time low-cost schools in Latin America, founding Vereda Educação. Already in the first academic year, in 2018, the school reached three thousand student enrollments and became an exponent of the sector, opening in the following year two new campuses and a support center for school management in the capital of São Paulo. Danilo raised more than BRL 100 million, being responsible for raising one of the biggest rounds in the education sector in Brazil and quickly became a key player in the industry. In the wake of Vereda's success, different educational groups have incorporated the concept and today thousands of low- and middle-income families, in several states of Brazil, have full-time access to low-cost schools.
After Danilo's experience as a school maintainer, following his exit of Vereda he idealized another concept, this time an even bigger and more innovative one, which was a B2B financial institution dedicated to k-12 education - something that unbelievably did not exist until 2020 in Latin America. Thus, was born Educbank. In this new and current venture, Danilo has already raised more than BRL 200 million, being responsible for one of the largest Series A rounds in Latin America, led by Vasta (NASDAQ:VSTA), officially announced in July/2022.
For innovation based on social impact, Danilo was appointed Ambassador in Brazil for entrepreneurship and innovation by the London School of Economics and Political Science (LSE), was named by the Massachusetts Institute of Technology (MIT) in its Innovators Under 35, by Ernst & Young as Entrepreneur of the Year 2022 in Brazil, and honored by the SXSW Innovation Awards, among others relevant recognitions.
"Educbank is the first institution in Latin America dedicated to providing capital and financial support to k-12 education schools."
"In a completely innovative way, Educbank solves a chronic problem in Brazilian education by providing long-term financial and institutional security for schools."
WBM - Thanks for the interview. Please begin by highlighting some of Educbank's recent recognitions.
DC - Educbank has started a new scenario within the fintech and edtech market in Latin America. After its creation, other companies in the Latin region began to look at the same thesis and more than BRL 1 billion has already been invested in the last 12 months. New players have emerged in Brazil, Mexico, Argentina, Colombia and Chile, inspired by Educbank.
Educbank was elected in 2021 by the London School of Economics and Political Science (LSE) in a global competition as one of the most innovative companies, being the only Brazilian company to win the award. Educbank also became a member of AWS EdStart – Amazon’s international program to accelerate educational technology projects.
In 2022, Educbank was selected for Endeavor's Scale-Up acceleration program, was TOP 3 in the CNN Brasil Notable Awards (education category), was appointed as one of the companies that generate the most social impact in Latin America, according to Innovation Latam and the Dom Cabral Foundation, and was announced as a finalist for the SXSW Innovation Awards 2023, being the only company from Latin America among the more than 50 nominees divided into 14 categories.
WBM - What are some of the specific problems solved by Educbank?
DC - Through the innovation created by Educbank, we resolved in the short term 4 problems that are considered the biggest bottlenecks in the sector:
1. the school manager having to deal with the seasonality of bad debt, which represents 25% of his monthly revenue, having to continue honoring the payroll, paying suppliers (regardless of the working capital problem);
2. the difficulty of schools in accessing capital, credit and other financial products (currently only 5% of the 40,000 private schools that exist in Brazil have auditable data and assets, which complicates any negotiation with traditional financial institutions);
3. The school manager wastes 50% of his time dedicating himself to resolving side-activities that involve administrative, financial and billing issues, also damaging his energy and the school's budget;
4. The noise in the relationship between the School and the families (financial guardians of the children), since when a family is in default, it avoids any type of contact with the School and the lack of engagement of the financial guardians is one of the main factors to the decline in learning rates.
WBM - What key strengths are behind Educbank’s success?
DC - I strongly believe that Educbank's success is based on five pillars:
(1) Educbank has a strong culture based on autonomy with responsibility, collaboration and passion for education;
(2) the innovation and pioneering spirit;
(3) the development of products and services centered on the school's needs, that is, all focus and attention on the school (our client);
(4) the fact of solving a real problem;
(5) a strong brand.
WBM - Talk to us about innovation at Educbank.
DC - Educbank is the first institution in Latin America dedicated to providing capital and financial support to k-12 education schools. Ensuring the full receipt of monthly fees, the company supports schools by also providing lines of financing, means of payment, ERP, LMS, accounting, marketing, among other benefits. The group was a pioneer in guaranteeing schools' income by eliminating defaults and neutralizing delays in family payments. In return, it charges an administration fee for the total monthly fees transacted on the platform.
To scale the challenge, an unprecedented rating model was developed for the sector, which uses machine learning to process a huge range of operational, academic and institutional variables of schools. The platform is capable of establishing a score for each one of them – aiming to establish a correlation between student learning, the operational quality of the school and the value of its monthly fees. Therefore, the higher the academic potential vis-a-vis the monthly fee, the better the school's rating and the greater the volume of investment destined for it.
For decades, schools have suffered from the seasonality of defaults and the difficulty in accessing credit to cover working capital and invest in improvements. On the other hand, schools increase the value of tuition well above inflation (elitizing access) to cover budget gaps arising from management without predictability. Added to this, school managers spend 50% of their time and a good part of their budget committed to dealing with financial activities instead of dedicating themselves to the core activity of schools, which is educating and developing people. All this, as families can prioritize other, more expensive debts to the detriment of school fees (since, according to Brazilian federal legislation, children are protected from being harmed in teaching during the school year in case of default). That is, only in the following academic year do the late tuition fees need to be paid in order to carry out the re-enrollment.
Thus, in a completely innovative way, Educbank solves a chronic problem in Brazilian education by providing long-term financial and institutional security for schools.
"The addressable market is huge in Brazil, Latin America and other continents. There is space for everyone. They say that an excellent idea from a great company is only confirmed when it begins to influence competitors and/or the emergence of new players."
WBM - Several Latin American fintech-edtech companies have followed your lead. How do you view the movement you have sparked?
DC - I see this movement with great satisfaction and am very honored. Several Latin American entrepreneurs have been looking for me to talk, asking for my opinion, mentoring, or to participate as a Board Member. The addressable market is huge in Brazil, Latin America and other continents. There is space for everyone. They say that an excellent idea from a great company is only confirmed when it begins to influence competitors and/or the emergence of new players.
I really believe in that, after all, to undertake is to escape the commonplace and, therefore, innovation is fundamental. Therefore, in order to undertake successfully, I see it as a determining factor to find a niche, a market opportunity that is unexplored or little explored in a given region or country. In this way, it will be natural that all groups in that segment of the economy will be influenced and this will only reinforce the relevance of the thesis.
What is more curious is that it is not the first time that this movement has happened in my career. As an entrepreneur, I had my first experience creating a network of full-time low-cost schools for low- and middle-income families, inaugurating this concept in Brazil and this influenced the main educational groups in the country to look at this thesis and create their own networks. Now, with the creation of Educbank, this movement of influence was even greater and tends to generate more and more players in the coming years.
WBM - Why is improving education the area you have chosen to apply your driving force to?
DC - Never in history has any democracy consolidated itself without k-12 education, and it will not be different with Brazil. Furthermore, no sector has managed to consolidate itself without access to capital, and it will not be different with the Brazilian k-12 sector.
According to the OECD, through PISA that evaluates education systems around the world, more than 90% of the Brazilian population does not have access to education of international quality standards. That is, more than 40 million students in our country do not have access to quality schools, whether in the private or public sphere.
This is not cool. That's why we decided to take on this problem for ourselves and created Educbank with the purpose of expanding access to quality education in Brazil. We know that education is a long-term investment and we need to collaborate with reversing this bad situation as soon as possible.
WBM - Share with us some of Educbank's measurable ESG impacts.
DC - Educbank emerged in line with UN's 2030 Agenda and assumed the commitment to expand access to quality k-12 education in Brazil by 2030, in line with SDG4 (Sustainable Development Goal 4 - Quality Education), using as a metric the levels of excellence 4, 5 and 6 of PISA (Programme for International Student Assessment), which is organized by the OECD (Organization for Economic Co-operation and Development).
By expanding access to quality education, there is a very high potential to reduce social inequalities in Brazil, while maintaining alignment with the UN in terms of SDG10 (Reduction of Inequalities). Educbank's intention is to take the risk of financially supporting schools with the potential to leverage the future of Brazil.
Educbank uses the Theory of Change methodology to measure the impacts they generate in the short term and what they aim to generate in the long term.
"Involuntarily, I always made the association between innovation and purpose. I believe that without a well-defined and clear purpose, it is difficult to create something so relevant and innovative. You need to delve into the sector you want to undertake and discover the true pain of that potential client."
WBM - Why is it important for founders to have a greater mission than only commercial success?
DC - Involuntarily, I always made the association between innovation and purpose. I believe that without a well-defined and clear purpose, it is difficult to create something so relevant and innovative. You need to delve into the sector you want to undertake and discover the true pain of that potential client.
A few decades ago I came across Simon Sinek's 'Golden Circle' theory and noticed that there were already several studies (including his) about something that I intuitively already did: trying to find out why, then how and, finally, what.
It is worth highlighting that having a common purpose and mission with its investors, partners, directors and other employees is a very important engagement factor. Commercial success is also linked to motivation and willingness to work together to deliver more results with fewer resources.
Long before people talked about 'companies winter' and investors' quest for profitability and efficiency, Educbank was already working on a culture of scarcity, valuing every penny in the operation and delivering special results. We were aware that the 'cash burn' model focused only on growth was not sustainable. For this reason, we have already adopted a more conservative model that combines innovation, financial sustainability, progressive growth and social impact.
Answering your question, there is no magic formula for any entrepreneur or company. Each case is unique. Having a mission must be something genuine, come from the inside out. It cannot be false or forced. Therefore, I can only say about my case: yes, it was important for Educbank to have a greater mission.
WBM - Share with us some of your clients' success stories?
DC - Educbank is the only institution dedicated to k-12 education that is completely B2B (Business-To-Business) and that provides financial security without interfering with the autonomy and authority of schools at the operational level, including without managing collections and without interfering in the relationship between school and family. The other players that emerged inspired by Educbank chose to operate as a factoring (collection firm), which is nothing innovative and, as it is B2B2C (Business-To-Business-To-Consumer), interferes a lot with the autonomy and authority of school maintainers.
In this way, Educbank operates in a 'white label' way, supporting schools, but without interfering with the school's decision-making. Therefore, the financial solution created by Educbank was totally centered on the school's experience and needs.
With Educbank, the partner schools had an increase in income and a 14% growth in the number of new students enrolled. School managers who dedicated 50% of their schedules to financial activities can now focus more on the core activity of the institution, which is education. That is, with Educbank, maintainers reduced 40% of the time they were dedicated to collection actions and other initiatives related to default. During this period, Educbank neutralized 25% of school defaults and managers now have financial predictability to carry out long-term strategic planning.
There are notable stories from Educbank partner schools. There are cases of schools that have the best grades in national testing programs, but that had no prospect of sustaining their model without increasing tuition. With Educbank, not only were they able to maintain the academic model of excellence, but they were also able to maintain more affordable tuition fees. There are also cases of schools that had been suffering financially for years and, with the Covid-19 pandemic, considered closing their doors. With Educbank, they not only managed to improve their conditions, but also attracted so many students who are planning to open new units.
"In my view, a great leader is one who constantly seeks innovation to generate more and more results for the society and, in addition, manages to combine this with a positive externality. In this way, a great leader consequently starts to inspire other leaders and executives to seek other forms of innovation that generate impact and value creation."
WBM - What drives you as a leader?
DC - As a leader, what motivates me most is to innovate and inspire. In my view, a great leader is one who constantly seeks innovation to generate more and more results for the society and, in addition, manages to combine this with a positive externality. In this way, a great leader consequently starts to inspire other leaders and executives to seek other forms of innovation that generate impact and value creation.
Finally, I also consider as a relevant motivation the fact of transforming a purpose and an innovative idea into a solid and successful business. Engaging and managing people is a great challenge, but it is motivating when we build a strong culture and allow people to work towards a great purpose.
"Out of necessity, Brazil has become a hotbed of innovation and has developed a lot. The skills and abilities of the future, which were advocated in the World Economic Forum's "The Future of Jobs 2020" report, mention, for example, problem solving, critical thinking, flexibility and resilience. Due to all the social ills in Brazil, the population has already developed these skills and abilities."
WBM - What are some of the reasons behind Brazil’s position as a tech epicenter?
DC - We constantly hear the affirmation "Brazil is the country of the future". We can no longer wait for this future that never arrives. Brazil is a country rich in creativity and empiricism. Brazil is a country filled with faith and hope for better days. Even though it is underdeveloped and emerging, today it is one of the most innovative countries with enormous potential for the development of new solutions. Its continental dimensions, its cultural diversity and the expressive popular mass make our country a very large and desired market.
Out of necessity, Brazil has become a hotbed of innovation and has developed a lot. The skills and abilities of the future, which were advocated in the World Economic Forum's "The Future of Jobs 2020" report, mention, for example, problem solving, critical thinking, flexibility and resilience. Due to all the social ills in Brazil, the population has already developed these skills and abilities.
Therefore, I believe that these are some of the reasons why Brazil, despite being underdeveloped and emerging, has achieved some prominent positions as an epicenter of technology.
For more information about Educbank, visit: educbank.com.br