The enterprise capital world has all the time 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 break up that might have ended the agency however could have finally strengthened it.
At a minimal, Drive achieved one thing newsworthy in as we speak’s enterprise panorama this previous Might. The agency returned $500 million to traders in a single week, distributing almost $140 million value of Root Insurance coverage shares inside days of cashing out of Austin-based Considerate Automation and one other undisclosed firm.
It might be seen as a gimmick, certain, however restricted companions had been presumably happy. “I’m unaware of some other enterprise agency having been capable of obtain that sort of liquidity just lately,” stated Chris Olsen, Drive’s co-founder and now sole managing companion, who spoke to TechCrunch from the agency’s places of work in Columbus’s Brief 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 stunned the agency’s traders, noticed Kvamme finally launch the Ohio Fund, a broader funding car centered on the state’s financial improvement that features actual property, infrastructure, and manufacturing alongside expertise 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 happen to had been to only learn the newspapers or hearken to espresso retailers on Sand Hill Street, everybody all the time talks in regards to the $50 billion or $100 billion outcomes,” Olsen stated. “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. “If you happen to’re capable of exit corporations at $3 billion, you then’re capable of do one thing that occurs each single month,” he stated.
That rationale underpinned the Considerate Automation exit, which Olsen described as “close to fund-returning” regardless of being “under 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 standard Silicon Valley possession stake within the firm, stated 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 stated of Considerate Automation, which was beforehand backed by New Mountain, the PE agency. “About 20% of the businesses in our portfolio as we speak, we’re the only enterprise agency in these companies.”
Portfolio Wins and Losses
Drive’s observe report consists of each huge successes and in addition huge 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. Right this moment, 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 fireplace sale.
What units Drive aside in each instances, Olsen argues, is its concentrate on corporations constructing outdoors 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 selection between constructing close to their clients or their traders.
It’s Drive’s secret sauce, he suggests. “Early-stage corporations which can be primarily based outdoors 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 stated. “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 attempting to give you one thing completely 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 characterize America’s $18 trillion economic 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 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 car introduced in June 2022.
Requested about cash-on-cash returns to this point, Olsen stated that with $2.2 billion in belongings underneath administration throughout all of Drive’s funds, all are “high quartile funds” with “north of 4x internet on our most mature funds” and “persevering with to develop from there.”
Within the meantime, Drive’s thesis about Columbus as a official tech hub obtained 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 stated. “Now you’re seeing actually the individuals I consider as being the neatest minds in expertise — whether or not it’s Elon Musk or Larry Ellison or Peter Thiel — shifting out of Silicon Valley and opening large presences in numerous cities.”
