Drive Capital’s second act – how the Columbus venture firm found success after a split

The venture capital landscape has long viewed the Midwest with fluctuating interest, a cycle of enthusiasm during boom times followed by a retreat to the coasts when markets tighten. For Columbus, Ohio-based Drive Capital, this ebb and flow has coincided with its own internal challenges, including a notable co-founder split that, rather than dissolving the firm, appears to have fortified its resolve and strategy.

Recently, Drive Capital achieved a remarkable feat in today’s often-stagnant venture environment. In May, the firm successfully returned $500 million to investors in a single week. This significant liquidity event included the distribution of nearly $140 million worth of Root Insurance shares, alongside the profitable exit from Austin-based Thoughtful Automation and another undisclosed company.

Chris Olsen, Drive’s co-founder and now sole managing partner, highlighted the rarity of this achievement. “I’m unaware of any other venture firm having been able to achieve that kind of liquidity recently,” Olsen stated, speaking from the firm’s Columbus offices. This success marks a profound turnaround for Drive Capital, which faced existential questions just three years prior.

The firm’s challenges stemmed from a high-profile co-founder split when Olsen and Mark Kvamme, both former Sequoia Capital partners, parted ways. Kvamme subsequently launched the Ohio Fund, an investment vehicle with a broader focus encompassing real estate, infrastructure, manufacturing, and technology, aimed at the state’s economic development.

Drive’s renewed success is underpinned by what Olsen describes as a deliberately contrarian strategy. While much of the industry remains fixated on “unicorns” and “decacorns” – companies valued at $1 billion and $10 billion respectively – Drive focuses on more attainable yet highly profitable outcomes. Olsen noted, “If you were to just read the newspapers or listen to coffee shops on Sand Hill Road, everyone always talks about the $50 billion or $100 billion outcomes. But the reality is, while those outcomes do happen, they’re really rare.”

Instead of chasing these elusive giants, Drive targets exits at $3 billion or more. “In the last 20 years, there have only been 12 outcomes in America over $50 billion,” Olsen explained. “By contrast, there have been 127 IPOs at $3 billion or more, plus hundreds of M&A events at that level. If you’re able to exit companies at $3 billion, then you’re able to do something that happens every single month.”

This philosophy was exemplified by the Thoughtful Automation exit, which Olsen described as “near fund-returning” despite being valued “below a billion dollars.” The AI healthcare automation company was acquired by private equity firm New Mountain Capital, which then integrated it with two other companies to form Smarter Technologies. Drive’s success was amplified by its substantial ownership stake, typically around 30% on average, compared to the 10% often held by Silicon Valley firms. This is frequently due to Drive being the sole venture investor across multiple funding rounds.

“We were the only venture firm who invested in that company,” Olsen affirmed regarding Thoughtful Automation. “About 20% of the companies in our portfolio today, we are the sole venture firm in those businesses.”

Portfolio Wins and Losses

Drive’s journey includes both significant triumphs and notable setbacks. The firm was an early backer of Duolingo, investing in the language-learning platform before it generated revenue, after Olsen and Kvamme encountered founder Luis von Ahn in Pittsburgh. Duolingo now boasts a market capitalization of nearly $18 billion on NASDAQ.

Other successes include investments in Vast Data, a data storage platform valued at $9 billion in late 2023 and reportedly seeking new funding, and the profitable distribution from Root Insurance, despite the company’s volatile public market performance since its late 2020 IPO.

However, Drive also navigated the spectacular collapse of Olive AI, a Columbus-based healthcare automation startup that raised over $900 million and reached a $4 billion valuation before its eventual fire sale.

What distinguishes Drive, Olsen asserts, is its steadfast focus on companies developing outside Silicon Valley’s hyper-competitive environment. To that end, the firm has established a presence with employees in six cities: Columbus, Austin, Boulder, Chicago, Atlanta, and Toronto, aiming to support founders who would otherwise face a dilemma between proximity to customers and investors.

Olsen sees this geographic arbitrage as Drive’s unique advantage. “Early-stage companies that are based outside of Silicon Valley have a higher bar. They have to be a better business to garner a venture investment from a venture firm in Silicon Valley,” Olsen said. “The same thing applies to us with companies in Silicon Valley. For us to invest in a company in Silicon Valley, it has a higher bar.”

This approach applies a distinct lens to their investments. While many VCs pursue entirely novel concepts, Drive shows a strong preference for startups applying technology to traditional industries. Examples include an autonomous welding company and what Olsen terms “next-generation dental insurance” — sectors that collectively represent a significant portion of America’s $18 trillion economy beyond the tech darlings of Silicon Valley.

Whether this unique focus and Drive’s recent momentum will translate into a substantial new fund remains to be seen. The firm is currently managing assets from its existing fund, a $1 billion vehicle announced in June 2022, with 30% of its capital still available for investment.

Regarding cash-on-cash returns, Olsen stated that with $2.2 billion in assets under management across all of Drive’s funds, they are all “top quartile funds” with “north of 4x net on our most mature funds” and “continuing to grow from there.”

Drive’s thesis about Columbus emerging as a legitimate tech hub recently gained further validation with the announcement that Palmer Luckey, Peter Thiel, and other tech billionaires plan to launch Erebor, a crypto-focused bank headquartered in Columbus.

“When we started Drive in 2012, people thought we were nuts,” Olsen reflected. “Now you’re seeing literally the people I think of as being the smartest minds in technology — whether it’s Elon Musk or Larry Ellison or Peter Thiel — moving out of Silicon Valley and opening massive presences in different cities.”