The venture capital community has always established a cold relationship with the Midwest. Investors rush in during boom times and then retreat to the shore when the market turns sour. For Columbus, Ohio-based Drive Capital, this cycle of concern and selflessness played a role in the context of its own internal turmoil a few years ago—a split of a co-founder could have ended the company, but could eventually strengthen it.
In the past May, Drive has gained news value at least in today’s Venture Landscape. The company returned $500 million to investors in a week, allocating nearly $140 million in root insurance stocks within days after cashing out from thoughtful automation in Austin and another undisclosed company.
Of course it can be regarded as a head, but the limited partners are probably happy. “I didn’t know that any other venture capital firms have been able to achieve this liquidity lately,” said Drive’s co-founder and now the only management partner.
For a company facing survival problems, Olson and his co-founder Mark Kvamme (both former Sequoia Capital partners) embarked on a separate approach, which was a meaningful turnaround. The company’s investors were surprised that Kwame eventually founded the Ohio Foundation, a broader investment vehicle focused on the state’s economic development, which includes real estate, infrastructure and technology investments, as well as technology investments.
Drive’s recent success stems from what Olsen calls a strategy violation in an industry focused on “unicorns” and “Decacorns”, which is worth $1 billion and $10 billion, respectively.
“If you’re just reading a newspaper or listening to a coffee shop on Sand Hill Road, everyone will always talk about $50 billion or $100 billion in results,” Olson said. “But the reality is that while these results do happen, they do have very few. In the past 20 years, in the U.S., there’s more than $50 billion in results.”
By comparison, he noted that there have been 127 IPOs of $3 billion or more, as well as hundreds of M&A activities at that level. “If you can exit the company for $3 billion, you can do what happens every month,” he said.
This reasoning underpins thoughtful automation exports, which Olsen calls “almost a fundraising”, although it calls it “nearly fundraising.” AI Healthcare Automation Company was sold to private equity firm New Mountain Capital, which combined with two other companies to form a smarter technology. Olson said the drive owns a “multiple” of a typical Silicon Valley ownership stake.
“We are the only venture capital firm to invest in the company,” Olson said of thoughtful automation, which has previously been backed by private equity firm New Mountain. “Today, about 20% of the companies in our portfolio are the only venture capital firms in these businesses.”
Portfolio wins and losses
Drive’s history includes both great success and big trips. The company was an early investor in Duolingo, and after Olsen and Kvamme met with founder Luis von Ahn at the Pittsburgh bar where Duolingo is located, it was gaining a language learning platform. Today, Duolingo has a market capitalization of nearly $18 billion and has been traded on the Nasdaq.
The company has also invested in a lot of data, and the data storage platform is ultimately worth $9 billion at the end of 2023 (reported to be currently raising funds), and driving has made money despite the company’s rock public market performance since its late 2020 IPO.
But Drive also experienced a huge failure of Olive AI, a Columbus-based medical automation startup, raising more than $900 million worth $4 billion before eventually selling a portion of its business in development sales.
Olson believes that in both cases, what is unique is that it focuses on building companies outside of Silicon Valley’s hyper-competitive ecosystem. To this end, the company now has employees in six cities – Columbus, Austin, Boulder, Chicago, Atlanta and Toronto – and expresses support for the founders, who otherwise face the option to build near clients or investors.
He suggested that this is Drive’s secret seasoning. “Early stage companies outside Silicon Valley have higher bars. They have to do better to get venture capital from a venture capital in Silicon Valley,” Olson said. “The same thing applies to companies in Silicon Valley. To make us invest in a company in Silicon Valley, it has a higher bar.”
It seems to have applied different lenses. While many VC Chase companies try to come up with completely novel things, Drive prefers startups to apply technology to traditional industries. Drive, for example, has invested in an autonomous welding company, and what Olsen calls “next-generation dental insurance,” a division that can be said to be Silicon Valley’s technology darling, a US $18 trillion economy.
Whether this focus or driving force can be transformed into a big new fund for the driver, it remains to be seen. The company is currently managing assets that Kvamme is still raising when boarding, and according to Olsen, the company has 30% of its current fund of the $1 billion vehicle announced in June 2022.
Asked about the cash return to date, Olson said there are $2.2 billion in all Drive funds managed assets, all of which are “top quartile funds”, “the most mature funds in the north 4 times net funds” and “continue to grow from there.”
Meanwhile, Drive’s paper on Columbus as a legal technology hub was further verified this week, when Palmer Luckey, Peter Thiel and other Tech billionaires announced plans to form Erebor, a crypto-centric bank headquartered in Columbus.
“When we started driving in 2012, people thought we were crazy,” Olson said. “Now, you literally see that people I think are the smartest people in technology, whether it’s Elon Musk, Larry Ellison or Peter Thiel, moved out of Silicon Valley and opened massive momentum in different cities.”
