The enterprise capital world has at all times had a hot-and-cold relationship with the Midwest. Buyers rush in throughout increase occasions, then retreat to the coasts when markets flip bitter. For Columbus, Ohio-based Drive Capital, this cycle of consideration and disinterest performed out in opposition to the backdrop of its personal inner upheaval a number of years in the past — a co-founder break up that might have ended the agency however might have finally strengthened it.
At a minimal, Drive achieved one thing newsworthy in at present’s enterprise panorama this previous Could. The agency returned $500 million to traders in a single week, distributing almost $140 million price of Root Insurance coverage shares inside days of cashing out of Austin-based Considerate Automation and one other undisclosed firm.
It could possibly be seen as a gimmick, certain, however restricted companions have been presumably happy. “I’m unaware of any other venture firm having been able to achieve that kind of liquidity recently,” mentioned Chris Olsen, Drive’s co-founder and now sole managing companion, who spoke to TechCrunch from the agency’s workplaces in Columbus’s Quick North neighborhood.
It’s a significant turnaround for a agency 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 break up, which shocked the agency’s traders, noticed Kvamme finally launch the Ohio Fund, a broader funding car centered on the state’s financial growth that features actual property, infrastructure, and manufacturing alongside know-how investments.
Drive’s latest success stems from what Olsen calls a intentionally contrarian technique in an business preoccupied with “unicorns” and “decacorns” — corporations valued at $1 billion and $10 billion, respectively.
“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,” Olsen mentioned. “But the reality is, while those outcomes do happen, they’re really rare. In the last 20 years, there have only been 12 outcomes in America over $50 billion.”
Against this, he famous, there have been 127 IPOs at $3 billion or extra, plus tons of of M&A occasions at that degree. “If you’re able to exit companies at $3 billion, then you’re able to do something that happens every single month,” he mentioned.
That rationale underpinned the Considerate Automation exit, which Olsen described as “near fund-returning” regardless of being “below a billion dollars.” The AI healthcare automation firm was bought to personal fairness agency New Mountain Capital, which combined it with two other companies to kind Smarter Applied sciences. Drive owned “multiples” of the everyday Silicon Valley possession stake within the firm, mentioned Olsen, who added that Drive’s typical possession stake is round 30% on common in comparison with a Valley agency’s 10% — actually because it’s the sole enterprise investor throughout quite a few funding rounds.
“We were the only venture firm who invested in that company,” Olsen mentioned of Considerate Automation, which was beforehand backed by New Mountain, the PE agency. “About 20% of the companies in our portfolio today, we are the sole venture firm in those businesses.”
Portfolio Wins and Losses
Drive’s observe file contains each massive successes and likewise massive stumbles. The agency 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 relies. As we speak, Duolingo trades on NASDAQ with a market cap of almost $18 billion.
The agency additionally invested in Huge Knowledge, an 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 finally promoting parts of its enterprise in a hearth sale.
What units Drive aside in each instances, Olsen argues, is its deal with corporations constructing exterior Silicon Valley’s hyper-competitive ecosystem. Towards that finish, the agency now has staff 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 clients or their traders.
It’s Drive’s secret sauce, he suggests. “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 mentioned. “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.”
It applies a distinct lens, seemingly. Whereas many VCs chase corporations making an attempt to give you one thing fully 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” — 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 an enormous new fund for Drive stays to be seen. The agency is presently managing belongings that it raised when Kvamme was nonetheless on board, and in line with 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 to this point, Olsen mentioned that with $2.2 billion in belongings below administration throughout all of Drive’s funds, all are “top quartile funds” with “north of 4x net on our most mature funds” and “continuing to grow from there.”
Within the meantime, Drive’s thesis about Columbus as a authentic tech hub acquired 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.
“When we started Drive in 2012, people thought we were nuts,” Olsen mentioned. “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.”
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