The venture capital world has always had a hot-and-cold relationship with the Midwest. Investors rush in during boom times, then retreat to the coasts when markets turn sour. For Columbus, Ohio-based Drive Capital, this cycle of attention and disinterest played out against the backdrop of its own internal upheaval several years ago — a co-founder split that could have ended the firm but may have ultimately strengthened it.

At a minimum, Drive achieved something newsworthy in today’s venture landscape this past May. The firm returned $500 million to investors in a single week, distributing nearly $140 million worth of Root Insurance shares within days of cashing out of Austin-based Thoughtful Automation and another undisclosed company.

It could be seen as a gimmick, sure, but limited partners were undoubtedly pleased. “I’m unaware of any other venture firm having been able to achieve that kind of liquidity recently,” said Chris Olsen, Drive’s co-founder and now sole managing partner, who spoke to TechCrunch from the firm’s offices in Columbus’s Short North neighborhood.

It’s a remarkable turnaround for a firm that faced existential questions just three years ago when Olsen and his co-founder Mark Kvamme — both former Sequoia Capital partners — went their separate ways. The split, which surprised the firm’s investors, saw Kvamme eventually launch the Ohio Fund, a broader investment vehicle focused on the state’s economic development that includes real estate, infrastructure, and manufacturing alongside technology investments.

Drive’s recent success stems from what Olsen calls a deliberately contrarian strategy in an industry preoccupied with “unicorns” and “decacorns” — companies 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 said. “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.”

By contrast, he noted, there have been 127 IPOs at $3 billion or more, plus hundreds of M&A events at that level. “If you’re able to exit companies at $3 billion, then you’re able to do something that happens every single month,” he said.

That rationale underpinned the Thoughtful Automation exit, which Olsen described as “near fund-returning” despite being “below a billion dollars.” The AI healthcare automation company was sold to private equity firm New Mountain Capital, which combined it with two other companies to form Smarter Technologies. Drive owned “multiples” of the typical Silicon Valley ownership stake in the company, said Olsen, who added that Drive’s typical ownership stake is around 30% on average compared to a Valley firm’s 10% — often because it is the sole venture investor across numerous funding rounds.

“We were the only venture firm who invested in that company,” Olsen said of Thoughtful Automation, which was previously backed by New Mountain, the PE firm. “About 20% of the companies in our portfolio today, we are the sole venture firm in those businesses.”

Portfolio Wins and Losses

Drive’s track record includes both big successes and also stumbles. The firm 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, where Duolingo is based. Today, Duolingo trades on NASDAQ with a 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 fundraising right now), and Drive made money on the recent Root Insurance distribution despite that company’s rocky public market performance since its late 2020 IPO.

But Drive also experienced the spectacular failure of Olive AI, a Columbus-based healthcare automation startup that raised over $900 million and was valued at $4 billion before eventually selling portions of its business in a fire sale.

“You have to be able to produce returns in bad markets as well as good markets,” Olsen said. “When markets really get tested is when there’s not as much liquidity.”

What sets Drive apart, Olsen argues, is its focus on companies building outside Silicon Valley’s hyper-competitive ecosystem. The firm now has employees in six cities — Columbus, Austin, Boulder, Chicago, Atlanta, and Toronto — and says it backs founders who would otherwise face a choice between building near their customers or their investors.

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 said. “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.”

Much of the firm’s portfolio centers not on companies trying to come up with something entirely novel, but instead on those applying tech to traditional industries that coastal VCs might overlook. Drive has invested in an autonomous welding company, for example, and what Olsen calls “next-generation dental insurance” — sectors that arguably represent America’s $18 trillion economy beyond Silicon Valley’s tech darlings.

Whether that focus — or Drive’s momentum — translates into a big new fund for Drive remains to be seen. The firm is currently managing assets that it raised when Kvamme was still on board, and according to Olsen, it has 30% left to invest of its current fund, a $1 billion vehicle announced in June 2022.

Asked about cash-on-cash returns to date, Olsen said that with $2.2 billion in assets under management across 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.”

In the meantime, Drive’s thesis about Columbus as a legitimate tech hub received further validation this week when Palmer Luckey, Peter Thiel, and other tech billionaires announced plans to launch Erebor, a crypto-focused bank headquartered in Columbus.

“When we started Drive in 2012, people thought we were nuts,” Olsen said. “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.”