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

The venture capital scene in the Midwest has often been a rollercoaster, with enthusiasm swelling during prosperous times and receding when challenges arise. For Drive Capital, a venture firm located in Columbus, Ohio, this cycle of interest has been particularly dramatic, especially following an internal split among its founders several years back. This pivotal moment could have marked the end of the firm, but instead, it appears to have fortified its position in a competitive market. In May, Drive Capital made headlines by returning an impressive $500 million to its investors in just one week. This included nearly $140 million in shares from Root Insurance and cashing out from Austin-based Thoughtful Automation and one other undisclosed entity. Chris Olsen, the firm’s co-founder and now the sole managing partner, expressed surprise at the liquidity achieved, stating, "I’m unaware of any other venture firm having been able to achieve that kind of liquidity recently." This turnaround is particularly striking given the firm’s recent history. Just three years ago, Olsen and his partner Mark Kvamme, both former Sequoia Capital associates, parted ways unexpectedly. Kvamme subsequently initiated the Ohio Fund, which focuses on a wider array of investments, including real estate, infrastructure, and manufacturing, alongside technology. Drive Capital’s recent successes can be attributed to what Olsen describes as a contrarian approach in an industry often fixated on billion-dollar valuations. He pointed out that while discussions around $50 billion or $100 billion exits are common, substantial outcomes are actually quite rare. In the past two decades, the U.S. has seen only 12 companies achieve valuations over $50 billion, while there have been 127 IPOs valued at $3 billion or more. This philosophy guided Drive’s exit from Thoughtful Automation, which Olsen referred to as a significant return for the fund despite not reaching the billion-dollar mark. The healthcare automation company was acquired by private equity firm New Mountain Capital, which subsequently merged it with two other firms to form Smarter Technologies. Drive Capital held a considerable stake in Thoughtful Automation, averaging around 30%, significantly higher than the typical 10% seen in Silicon Valley. Drive’s portfolio showcases a mix of notable successes and setbacks. The firm was an early backer of Duolingo, investing in the language-learning platform prior to its revenue generation. Today, Duolingo boasts a market capitalization nearing $18 billion. Additionally, Drive has seen profits from its investment in Vast Data, a data storage company valued at $9 billion as of late 2023. However, not all investments have prospered; the firm also faced a significant loss with Olive AI, a Columbus-based startup that raised over $900 million and was once valued at $4 billion but eventually had to offload parts of its business in a fire sale. Olsen emphasized the necessity of generating returns even in challenging market conditions, noting, "You have to be able to produce returns in bad markets as well as good markets." What distinguishes Drive Capital, according to Olsen, is its commitment to supporting businesses outside the highly competitive Silicon Valley environment. With a presence in six cities, including Columbus, Austin, and Chicago, Drive aims to back founders who might otherwise have to choose between proximity to their customers or investors. Currently, Drive Capital is managing funds raised while Kvamme was still involved, with 30% of its $1 billion fund from June 2022 remaining to invest. Olsen stated that all of Drive’s funds are performing well, with their most mature funds showing returns exceeding 4x. As Columbus continues to establish itself as a tech hub, the recent announcement of a crypto-focused bank, Erebor, by industry heavyweights like Palmer Luckey and Peter Thiel further validates Drive’s vision. Reflecting on the evolution of the firm since its inception in 2012, Olsen remarked, "When we started Drive, people thought we were nuts. Now, you’re seeing some of the smartest minds in technology moving out of Silicon Valley and establishing significant presences in other cities."