The enterprise capital world has at all times had a hot-and-cold relationship with the Midwest. Traders rush in throughout growth instances, 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 cut up that might have ended the agency however might have in the end strengthened it.
At a minimal, Drive achieved one thing newsworthy in at this time’s enterprise panorama this previous Could. The agency returned $500 million to traders in a single week, distributing practically $140 million value 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, positive, however restricted companions had been presumably happy. “I’m unaware of every other enterprise agency having been capable of obtain that form of liquidity not too long ago,” mentioned Chris Olsen, Drive’s co-founder and now sole managing associate, who spoke to TechCrunch from the agency’s places of work 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 cut up, which shocked the agency’s traders, noticed Kvamme ultimately launch the Ohio Fund, a broader funding automobile targeted on the state’s financial improvement that features actual property, infrastructure, and manufacturing alongside know-how investments.
Drive’s current 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.
“Should you had been to simply learn the newspapers or hearken to espresso outlets on Sand Hill Street, everybody at all times talks concerning the $50 billion or $100 billion outcomes,” Olsen mentioned. “However the actuality is, whereas these outcomes do occur, they’re actually uncommon. Within the final 20 years, there have solely been 12 outcomes in America over $50 billion.”
Against this, 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 corporations at $3 billion, you then’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 personal fairness agency New Mountain Capital, which mixed it with two different corporations to type 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 had been the one enterprise agency who invested in that firm,” Olsen mentioned of Considerate Automation, which was beforehand backed by New Mountain, the PE agency. “About 20% of the businesses in our portfolio at this time, we’re the only enterprise agency in these companies.”
Portfolio Wins and Losses
Drive’s monitor file contains each large successes and likewise large 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 practically $18 billion.
The agency additionally invested in Huge Information, an information storage platform final valued at $9 billion in late 2023 (and is reportedly fundraising proper now), and Drive made cash on the current 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 fireplace sale.
What units Drive aside in each circumstances, Olsen argues, is its give attention to corporations constructing exterior Silicon Valley’s hyper-competitive ecosystem. Towards that finish, the agency 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 alternative between constructing close to their prospects or their traders.
It’s Drive’s secret sauce, he suggests. “Early-stage corporations which are based mostly exterior of Silicon Valley have the next bar. They must be a greater enterprise to garner a enterprise funding from a enterprise agency in Silicon Valley,” Olsen mentioned. “The identical factor applies to us with corporations in Silicon Valley. For us to spend money on an organization in Silicon Valley, it has the next bar.”
It applies a unique lens, seemingly. Whereas many VCs chase corporations making an attempt to provide you with one thing totally 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 signify America’s $18 trillion financial system past Silicon Valley’s tech darlings.
Whether or not that focus, or Drive’s momentum, interprets into a giant new fund for Drive stays to be seen. The agency 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 automobile introduced in June 2022.
Requested about cash-on-cash returns so far, 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 web on our most mature funds” and “persevering with to develop from there.”
Within the meantime, Drive’s thesis about Columbus as a professional 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.
“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 neatest minds in know-how — whether or not it’s Elon Musk or Larry Ellison or Peter Thiel — shifting out of Silicon Valley and opening huge presences in several cities.”
