The venture capital world has always had a passionate relationship with the Midwest. Investors rush to the boom period and retreat to the coast when the market gets sour. For Ohio-based drive capital Columbus, this cycle of attention and indifference came against the backdrop of an internal upheaval of its own years ago.
At the very least, Drive achieved something new and valuable in today's venture landscape this May. The company returned $500 million in a week to investors, distributing $140 million worth of root insurance stock within days of cashing out Austin-based thoughtful automation and another privately held company.
Certainly it might be seen as a gimmick, but the limited partners were definitely pleased. “They're looking forward to seeing the company's offices in the short north of Columbus,” said Chris Olsen, co-founder of Drive, who spoke with TechCrunch from the company's office, which is now in the short north district of Columbus.
This is an incredible turn of events for businesses that faced existential questions just three years ago when Olsen and his co-founder Mark Kvamme (both former Sequoia Capital Partners) went their separate ways. The split that surprised the company's investors was that Kvamme eventually launched an Ohio fund. This is a broader investment vehicle focused on the state's economic development, including real estate, infrastructure and manufacturing, along with technology investments.
The recent success of the drive comes from what Olsen deliberately calls the opposite strategy in an industry that is obsessed with “unicorns” and “decacones.” Companies were against $1 billion and $10 billion respectively.
“When you read the newspaper or listen to a coffee shop on Sandhill Road, everyone is always talking about $50 billion or $100 billion outcomes,” Olsen said. “But in reality, these results happen, but they're really rare. Over the last 20 years, there have only been 12 outcomes in the US, more than $50 billion.”
In contrast, he said there are 127 IPOs for over $3 billion and hundreds of M&A events at that level. “If you can leave a company for $3 billion, you can do what happens every month,” he said.
The rationale supported a thoughtful automation outlet that Olsen described as “a return to funds nearby” despite being “less than $1 billion.” The AI Healthcare Automation Company was sold to private equity company New Mountain Capital, and combined with two other companies to form smarter technology. Olsen said that, who owns a “multiplier” of Drive's typical Silicon Valley ownership ownership, typically has a stock in Drive's typical ownership average of about 30% compared to 10% of valley companies.
“We were the only venture company to invest in that company,” Olsen said of the thoughtful automation that was previously backed by New Mountain, a PE company. “Around 20% of the companies in our portfolio today are the only venture companies in those businesses.”
Portfolio victory and loss
Drive track record includes both great success and stumbling. The company was an early investor in Duolingo and supported the language learning platform after Olsen and Kvamme met founder Luis Von Ahn at a Duolingo-based Pittsburgh bar. Today, Duolingo is trading on Nasdaq at a market capitalization of around $18 billion.
The company also invested in a massive amount of data, the data storage platform worth $9 billion in the end in late 2023, and drives made money with recent root insurance distributions despite the company's rocky open market performance since the IPO in late 2020.
However, Drive also experienced an epic breakdown of Olive AI, a Columbus-based healthcare automation startup.
“Like a good market, you have to be able to generate returns in bad markets,” Olsen said. “When the market is really tested, it's when there's not that much liquidity.”
Olsen argues that what sets the drive apart is focusing on businesses that are built outside the ultra-competitive ecosystem of Silicon Valley. The company currently has employees in six cities: Columbus, Austin, Boulder, Chicago, Atlanta and Toronto. Otherwise, they support founders who face choices among buildings near their clients and investors.
It's the secret source of drive, he suggests. “Earth-stage companies based outside of Silicon Valley have higher bars. They have to be better businesses to get venture investments from Silicon Valley venture companies,” Olsen said. “The same applies to Silicon Valley companies. There are higher bars to invest in Silicon Valley companies.”
Much of its portfolio is concentrated in companies that are applying technology to traditional industries that coastal VCs may overlook, rather than companies that are trying to come up with something completely novel. Drive, for example, invests in autonomous welding companies, which Olsen calls it “next-generation dental insurance.”
It is not yet seen whether that focus – or drive momentum will be converted into a big new fund for drive. The company currently manages assets raised while KVAMME was still on board, with 30% remaining to invest in the current fund, announced by the $1 billion vehicle in June 2022.
Asked about cash-on-cash returns, Olsen said it was $2.2 billion in all the funds on the drive, all “four times the net north with the most mature funds,” and “continue to grow from there,” and “best quartile funds.”
In the meantime, the Driving paper on Columbus received further verification this week when Palmer Lucky, Peter Thiel and other tech billionaires announced plans to launch a Columbus-based crypto-focused bank.
“When we started driving in 2012, people thought we were nuts,” Olsen said. “Now you're literally looking at people I consider to be the smartest mind in technology — whether it's Elon Musk, Larry Ellison or Peter Thiel, moving out of Silicon Valley and opening up a massive presence in various cities.”