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The venture capital industry has always had a complex relationship with the Midwest. Investors flock to the region during prosperous times, only to retreat to the coasts when markets take a downturn. For Drive Capital, based in Columbus, Ohio, this pattern of attention and disinterest intersected with internal turmoil a few years ago – a split between co-founders that could have spelled doom for the firm but ultimately made it stronger.
Drive Capital made headlines in May by returning $500 million to investors in a single week. They distributed nearly $140 million in shares of Root Insurance shortly after exiting from Thoughtful Automation and another undisclosed company based in Austin. While some may view this move as a gimmick, limited partners likely rejoiced. Drive’s co-founder Chris Olsen, now the sole managing partner, highlighted the rarity of achieving such liquidity in the venture capital landscape.
The Contrarian Strategy
Olsen attributes Drive’s recent success to their deliberately contrarian approach in an industry obsessed with “unicorns” and “decacorns” – companies valued at $1 billion and $10 billion, respectively. Instead of chasing after these astronomical valuations, Drive focuses on exiting companies at $3 billion or more, which happens more frequently than the mega-billion outcomes.
The recent exit of Thoughtful Automation exemplifies this strategy. Although the sale was below a billion dollars, it was considered “near fund-returning.” Drive’s significant ownership stake in the company, a departure from the Silicon Valley norm, contributed to this success.
Portfolio Wins and Losses
Drive Capital boasts both notable successes and setbacks in its portfolio. Investments in companies like Duolingo and Vast Data have yielded substantial returns, while Olive AI faced a dramatic decline despite its initial promise. What sets Drive apart, according to Olsen, is their focus on companies outside Silicon Valley’s intense competition, an approach that has paid off in diverse sectors.
Drive’s commitment to investing in companies beyond the traditional tech hubs is evident in their diverse employee locations and portfolio companies. While the firm’s future fund prospects remain uncertain, their track record of high returns and unique investment strategy bode well for their continued success.
Drive Capital’s belief in Columbus as a burgeoning tech hub received validation with the announcement of Erebor, a crypto-focused bank launched by tech luminaries in the city. This shift reflects a broader trend of tech leaders relocating from Silicon Valley to explore new opportunities across different regions.
As Drive Capital continues to navigate the evolving venture capital landscape, their resilience and adaptability stand as a testament to their enduring success.
