Director: Daniel C. Levy

Rising Investments in For-Profit Higher Education

(Entry by Kevin Kinser)

PROPHE Summary:

Three for-profit institutions of higher education have just received new investments from venture capital firms. In two cases, the influx of cash is intended to finance expansion. Virginia College intends to quickly grow nationally in cities with more than 500,000 students. Florida Career College is looking to expand its curricular offerings and open additional locations. The third investment is replacing equity held by others in Capella University, an on-line institution based in Minnesota. Overall, the continued availability of new money indicates that the for-profit sector remains an attractive investment.

For the full story (shown with permission) see the Chronicle of Higher Education, January 21, 2005, "Investors Increase Their Stakes in 3 Higher-Education Companies," by Goldie Blumenstyk.
http://chronicle.com/temp/reprint.php?id=u03abnaqfblprnb408tsp01rwlewqbq

PROPHE Observation:

The growth of the for-profit sector in the U.S. has been greatly influenced by the investments of venture capital firms. Their strategy is straightforward: buy a stake in a for-profit institution giving it the resources to quickly expand, then sell the increased equity either to another venture capital firm or to the general investment community through a public offering in the stock market. Although the news reported in the article here concerns the US, the phenomenon is similar where firms invest in private universities abroad. Return on investment is the primary indicator of success for the firms. This is dramatically different than the traditional motivations for investing in higher education, namely as a charitable donation to the public good. The pursuit of profit is in large measure why for-profit universities such as Phoenix, DeVry, and Laureate have opened so many campuses in so many places, while prominent non-profit private universities like Harvard, Stanford, and Chicago remain grounded in their original locations.