Investor Chris Olsen knows the West Coast VC scene. He spent six years at Sequoia Capital in California before co-founding Drive Capital in Columbus, Ohio, in 2013 based on the theory that “the most compelling emerging market is America, just outside of Silicon Valley,” as he told us early last year. .
Institutional investors have bought into this terrain. At least they apparently believe that Olsen and company co-founder Mark Kvamme — who spent more than twice as many years at Sequoia as Olsen — know what they’re doing. Last summer, Drive sponsors pledged to invest an additional $1 billion with Drive, bringing the company’s assets to $2.2 billion.
Still, Drive hoped to sell more of its traditional peers on its vision, and while co-investors abound, no other coastal VC has opened an outpost in Columbus despite the hard work Drive has done to seed the region. In fact, when asked last week if another non-regional business had opened a store nearby, Olsen told us in a new interview that the opposite was happening. “I read about [VCs coming to the Midwest] on Twitter, and I’ve read about it in many different places, but I actually see VCs doing the opposite. I see them focusing their time in California right now more than ever before.
Olsen suggested that, for now at least, VCs worried about their performance fall back on the ground they know best. Says Olsen, “The reality is that if you’re a Silicon Valley-based venture capital firm, no LP at your annual meeting is going to ask you, ‘How did you miss Company X in Columbus?’ Like, it’s not gonna happen. But they’ll ask you, ‘How did you miss Company Y that was in Silicon Valley?’ They don’t want to miss those things in their backyard.
Olsen insists this is a perfect fit for Drive, which now employs 36 people in total. On the one hand, says Olsen, the region is now home to more “de novo” venture capital firms that are launched regionally; Simply put, Drive isn’t the only local stop for founders, which is important for building an ecosystem.
In the meantime, using Columbus as a base for a much broader regional strategy has certainly paid off with one of Columbus-based Drive: Root Insurance’s offerings. The car insurance company was started in the offices of Drive and later raised several hundred million dollars from East and West Coast investors including Ribbit Capital, Redpoint, Tiger Global and Coatue, before going public in October 2020. (Drive alone invested $67 million in total.)
Shares of Root have since fallen – they are currently priced at $11 each, down from $431 two days after its IPO – so retail investors have likely lost money on the company. But Drive’s 26.1% stake in Root before the IPO was worth $1.46 billion on the day of the offering. Even six months after Root’s lock-up period expired, the company’s shares were trading at $190, which is still well above their opening price of $27.
Of course, like other venture capital firms, Drive has had its post-pandemic challenges. Namely, another of Drive’s up-and-coming success stories, Olive AI, isn’t living up to its promises, according to a series of recent Axios reports.
The Columbus-based healthcare automation startup, founded in 2012, used its long history of pivots (27 in total) as proof that it had finally stumbled upon a business that worked. Since last year, it has described itself as a robotic process automation company that takes on the most tedious tasks of hospital workers so that nurses and doctors can spend more time with patients. Olive was also rewarded by investors for her willingness to shift gears. In fact, he has raised a staggering $902 million over the years and last year said he was valued at $4 billion.
But a particularly damning Axios piece that relied on interviews with 16 former and current health technology employees and executives, observed that according to these people’s accounts, Olive “inflates her abilities and has only generated a fraction of the savings it promises”. A former employee told Axios in that same April article, “There are hospitals that won’t touch [Olive] because they know people who have been burned. . .And I think people don’t want to admit it; there is a great sense of shame about it.
Olive admitted last month that mistakes were made in laying off 450 employees. CEO Sean Lane said in a message to staff posted on Olive’s website that “Olive’s values of ‘choosing vision over status quo’ and ‘acting with urgency’ have driven us to do significant investments in the most pressing areas of healthcare, to scale our teams and to move quickly to bring solutions to market.
The question is whether the outfit can right the ship. Asked about Axios’ reports, Olsen, who sits on Olive’s board, played them down. “Olive is a company on an incredible growth curve and on a rapid trajectory, and the reality is that every fast-growing company is just plain messy. Companies that grow 300% a year, they’re being asked to do three times as much as they did the year before, and it won’t be perfect. »
Especially with many VCs investing fewer dollars on less generous terms than last year, “You have to make choices,” Olsen continued. “We have to change strategy. This does not mean that the company is failing.
You can listen to our longer conversation with Olsen about other investments in the United States, the company’s latest investments, and the changing nature of board seats, here.