The venture capital world has all the time had a hot-and-cold relationship with the Midwest. Buyers rush in throughout growth occasions, then retreat to the coasts when markets flip bitter. For Columbus, Ohio-based Drive Capital, this cycle of consideration and disinterest performed out towards the backdrop of its personal inner upheaval a number of years in the past — a co-founder split that might have ended the firm however could have finally strengthened it.
At a minimal, Drive achieved one thing newsworthy in at this time’s venture panorama this previous Might. The firm returned $500 million to traders in a single week, distributing practically $140 million price of Root Insurance coverage shares inside days of cashing out of Austin-based Considerate Automation and one other undisclosed firm.
It may very well be seen as a gimmick, certain, however restricted companions had been presumably happy. “I’m unaware of every other venture firm having been capable of obtain that form of liquidity not too long ago,” mentioned Chris Olsen, Drive’s co-founder and now sole managing accomplice, who spoke to TechCrunch from the firm’s workplaces in Columbus’s Brief North neighborhood.
It’s a significant turnaround for a firm that confronted existential questions simply three years in the past when Olsen and his co-founder Mark Kvamme — each former Sequoia Capital companions — went their separate methods. The split, which stunned the firm’s traders, noticed Kvamme ultimately launch the Ohio Fund, a broader funding car centered on the state’s financial improvement that features actual property, infrastructure, and manufacturing alongside expertise investments.
Drive’s latest success stems from what Olsen calls a intentionally contrarian technique in an trade preoccupied with “unicorns” and “decacorns” — firms valued at $1 billion and $10 billion, respectively.
“Should you had been to simply learn the newspapers or take heed to espresso retailers on Sand Hill Highway, everybody all the time talks about the $50 billion or $100 billion outcomes,” Olsen mentioned. “However the actuality is, whereas these outcomes do occur, they’re actually uncommon. In the final 20 years, there have solely been 12 outcomes in America over $50 billion.”
In contrast, he famous, there have been 127 IPOs at $3 billion or extra, plus a whole lot of M&A occasions at that degree. “Should you’re capable of exit firms at $3 billion, then you definately’re capable of do one thing that occurs each single month,” he mentioned.
That rationale underpinned the Considerate Automation exit, which Olsen described as “close to fund-returning” regardless of being “beneath a billion {dollars}.” The AI healthcare automation firm was bought to non-public fairness firm New Mountain Capital, which combined it with two other companies to type Smarter Applied sciences. Drive owned “multiples” of the typical Silicon Valley possession stake in the firm, mentioned Olsen, who added that Drive’s typical possession stake is round 30% on common in comparison with a Valley firm’s 10% — actually because it’s the sole venture investor throughout quite a few funding rounds.
“We had been the solely venture firm who invested in that firm,” Olsen mentioned of Considerate Automation, which was beforehand backed by New Mountain, the PE firm. “About 20% of the firms in our portfolio at this time, we’re the sole venture firm in these companies.”
Portfolio Wins and Losses
Drive’s observe document contains each huge successes and in addition huge stumbles. The firm was an early investor in Duolingo, backing the language-learning platform when it was pre-revenue after Olsen and Kvamme met founder Luis von Ahn at a bar in Pittsburgh, the place Duolingo is predicated. Immediately, Duolingo trades on NASDAQ with a market cap of practically $18 billion.
The firm additionally invested in Huge Information, a information storage platform final valued at $9 billion in late 2023 (and is reportedly fundraising proper now), and Drive made cash on the latest Root Insurance coverage distribution regardless of that firm’s rocky public market efficiency since its late 2020 IPO.
However Drive additionally skilled the spectacular failure of Olive AI, a Columbus-based healthcare automation startup that raised over $900 million and was valued at $4 billion earlier than ultimately promoting parts of its enterprise in a hearth sale.
What units Drive aside in each circumstances, Olsen argues, is its give attention to firms constructing exterior Silicon Valley’s hyper-competitive ecosystem. Towards that finish, the firm now has workers in six cities — Columbus, Austin, Boulder, Chicago, Atlanta, and Toronto — and says it backs founders who would in any other case face a selection between constructing close to their prospects or their traders.
It’s Drive’s secret sauce, he suggests. “Early-stage firms which are based mostly exterior of Silicon Valley have a greater bar. They need to be a higher enterprise to garner a venture funding from a venture firm in Silicon Valley,” Olsen mentioned. “The identical factor applies to us with firms in Silicon Valley. For us to put money into a firm in Silicon Valley, it has a greater bar.”
It applies a totally different lens, seemingly. Whereas many VCs chase firms attempting to give you one thing completely novel, Drive has a penchant for startups making use of tech to conventional industries. Drive has invested in an autonomous welding firm, for instance, and what Olsen calls “next-generation dental insurance coverage” — sectors that arguably characterize America’s $18 trillion financial system past Silicon Valley’s tech darlings.
Whether or not that focus, or Drive’s momentum, interprets into a huge new fund for Drive stays to be seen. The firm is at the moment managing belongings that it raised when Kvamme was nonetheless on board, and based on Olsen, it has 30% left to speculate of its present fund, a $1 billion vehicle introduced in June 2022.
Requested about cash-on-cash returns up to now, Olsen mentioned that with $2.2 billion in belongings underneath administration throughout all of Drive’s funds, all are “high quartile funds” with “north of 4x internet on our most mature funds” and “persevering with to develop from there.”
In the meantime, Drive’s thesis about Columbus as a respectable tech hub obtained additional validation this week when Palmer Luckey, Peter Thiel, and different tech billionaires introduced plans to launch Erebor, a crypto-focused financial institution headquartered in Columbus.
“Once we began Drive in 2012, individuals thought we had been nuts,” Olsen mentioned. “Now you’re seeing actually the individuals I consider as being the smartest minds in expertise — whether or not it’s Elon Musk or Larry Ellison or Peter Thiel — transferring out of Silicon Valley and opening huge presences in numerous cities.”
