The Rise of Drive Capital: How a Midwest VC Firm is Redefining Investment Strategies

The venture capital landscape has always had a fluctuating relationship with the Midwest, with investors flocking in during prosperous times and retreating to the coasts when markets falter. For Drive Capital, based in Columbus, Ohio, this cycle unfolded amidst significant internal changes a few years ago—a co-founder split that could have crippled the firm but ultimately fortified it.

In May, Drive made headlines in today’s venture ecosystem by returning $500 million to its investors within a single week. This included a swift distribution of nearly $140 million in Root Insurance shares, following cash-outs from Austin-based Thoughtful Automation and another undisclosed company.

While some might view this as a marketing stunt, it certainly delighted limited partners. “I’m not aware of any other venture firm achieving that level of liquidity recently,” stated Chris Olsen, Drive’s co-founder and current managing partner, during a conversation with TechCrunch from the firm’s office located in Columbus’s vibrant Short North district.

This remarkable turnaround follows a period of uncertainty just three years ago when Olsen and his co-founder Mark Kvamme—both former partners at Sequoia Capital—parted ways. The split was unexpected for investors, with Kvamme eventually establishing the Ohio Fund, a broader investment initiative aimed at fostering economic development in the state, which encompasses real estate, infrastructure, and manufacturing alongside tech investments.

Drive’s recent triumphs can be attributed to what Olsen describes as a deliberately contrarian approach in an industry fixated on “unicorns” and “decacorns”—companies valued at $1 billion and $10 billion, respectively.

“If you only read the news or listen to the chatter on Sand Hill Road, the focus is always on $50 billion or $100 billion outcomes,” Olsen explained. “However, those results are exceptionally rare. Over the last 20 years, there have only been 12 companies in America that reached valuations exceeding $50 billion.”

In stark contrast, he highlighted that there have been 127 IPOs at $3 billion or more, plus a multitude of M&A events at that valuation. “If you can exit companies at $3 billion, you’re engaging in transactions that occur every month,” he noted.

This rationale was evident in the Thoughtful Automation exit, which Olsen characterized as “near fund-returning” despite being “below a billion dollars.” The AI healthcare automation firm was acquired by private equity firm New Mountain Capital, which subsequently merged it with two other companies to create Smarter Technologies. Drive held “multiples” of the average Silicon Valley ownership stake in the firm, Olsen noted, adding that Drive’s typical stake is around 30% compared to a typical 10% for Valley firms, often because it is the sole venture investor in several funding rounds.

“We were the only venture firm that invested in that company,” Olsen said of Thoughtful Automation, which had previously received backing from New Mountain, the PE firm. “Approximately 20% of the companies in our portfolio today have us as the sole venture investor.”

Successes and Challenges in the Portfolio

Drive’s investment history features a blend of significant wins and notable setbacks. The firm was an early backer of Duolingo, investing in the language-learning platform when it was pre-revenue after Olsen and Kvamme met founder Luis von Ahn at a bar in Pittsburgh, where Duolingo is headquartered. Today, Duolingo boasts a NASDAQ market cap of nearly $18 billion.

The firm also invested in Vast Data, a data storage platform last valued at $9 billion in late 2023 (and is reportedly currently fundraising), and Drive profited from the recent Root Insurance distribution despite the company’s challenging public market performance since its late 2020 IPO.

However, Drive also faced the dramatic downfall of Olive AI, a Columbus-based healthcare automation startup that raised over $900 million and reached a valuation of $4 billion before eventually selling parts of its business in a distressed sale.

“You need to generate returns in both thriving and challenging markets,” Olsen emphasized. “The true tests of a market arise when liquidity is scarce.”

What differentiates Drive, according to Olsen, is its focus on companies emerging outside the hyper-competitive Silicon Valley ecosystem. The firm now has team members in six cities—Columbus, Austin, Boulder, Chicago, Atlanta, and Toronto—supporting founders who often face the dilemma of choosing between proximity to customers or investors.

This unique approach is what Olsen refers to as Drive’s “secret sauce.” “Early-stage companies based outside Silicon Valley face a higher threshold. They must present a stronger business case to attract venture investment from a Silicon Valley firm,” he explained. “The same holds true for companies in Silicon Valley—our standards are elevated for those investments as well.”

Much of Drive’s portfolio is not primarily focused on groundbreaking innovations but rather on applying technology to traditional industries that coastal VCs might overlook. For example, Drive has invested in an autonomous welding firm and what Olsen describes as “next-generation dental insurance”—areas that represent a significant portion of America’s $18 trillion economy beyond Silicon Valley’s tech giants.

Whether this strategy—or Drive’s current momentum—will lead to a substantial new fund remains uncertain. The firm is presently managing assets raised during Kvamme’s tenure and, according to Olsen, has 30% remaining to invest from its current fund, a $1 billion vehicle announced in June 2022.

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

Meanwhile, Drive’s belief in Columbus as a legitimate tech hub received further validation recently when Palmer Luckey, Peter Thiel, and other tech billionaires announced plans to launch Erebor, a crypto-focused bank headquartered in Columbus.

“When we founded Drive in 2012, many thought we were crazy,” Olsen reflected. “Now you’re witnessing some of the brightest minds in technology—be it Elon Musk, Larry Ellison, or Peter Thiel—leaving Silicon Valley and establishing significant operations in various cities.”