VCs who cast a wider net have double backed to CA, says this ex-Sequoia Capital partner

Investor Chris Olsen knows the West Coast VC scene. He spent six years with 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 that pitch. At least, they apparently trust that Olsen and firm cofounder Mark Kvamme — who logged more than twice as many years at Sequoia than Olsen — know what they’re doing. This past summer, Drive’s limited partners committed to invest $1 billion more with Drive, bringing assets at the firm 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 VCs have opened an outpost in Columbus despite the legwork Drive has done to prime the area. In fact, asked last week if another non-regional firm has opened up shop nearby, Olsen told us in a new interview that the opposite is happening. “I read about [VCs coming to the Midwest] on Twitter, and I read about it in a lot of different places, but I actually see VCs doing the opposite. I see them concentrating their time back in California right now more than ever before.”

Olsen suggested that, for now at least, VCs worried about their performance are retrenching back to the terrain they know best. Said Olsen, “The reality is that if you’re a Silicon Valley-based venture firm, no LP at your annual meeting is going to ask you, ‘How did you miss company X in Columbus?’ Like, that’s not gonna happen. But they will 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 that that’s just fine with Drive, which now employs 36 people altogether. For one thing, Olsen says, the region is now home to more “de novo” venture firms that are being launched regionally; put another way, Drive is not the only local stop for founders, which is important in building an ecosystem.

In the meantime, using Columbus as its home base for a much broader regional strategy has certainly paid off with one of Drive’s deals: Columbus-based Root Insurance. The car insurance company was started in Drive’s offices and went on to raise many hundreds of millions of 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 altogether.)

Root’s shares have since tanked — they’re currently priced at $11 each, down from $431 two days after it went public — so retail investors have presumably lost money on the company. But Drive’s 26.1% stake in Root ahead of the IPO was worth a whopping $1.46 billion 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 way, way up from their opening-day price of $27.

Of course, like other venture firms, Drive has had its post-pandemic challenges. To wit, another of Drive’s success stories in the making, Olive AI, isn’t living up to its promises, according to a string of recent Axios reports.

The Columbus-based healthcare automation startup, founded in 2012,  has used its extensive history of pivots (27 altogether) as proof that it had finally stumbled upon a business that worked. As of last year, it described itself a robotic process automation company that takes on hospital workers’ most tedious tasks so nurses and physicians can spend more time with patients. Olive has been rewarded by investors for its willingness to shift gears, too. In fact, it has raised a staggering $902 million over the years and said last year that it was valued at $4 billion.

But one particularly damning Axios piece that relied on interviews with 16 former and current employees and health tech executives, observed that according to those individuals’ accounts, Olive “inflates its capabilities and has generated only a fraction of the savings it promises.” One former employee told Axios in this same April piece, “There are hospitals that won’t touch [Olive] because they know people who’ve been burned . . .And I think people don’t want to admit it; there’s a big sense of shame about it.”

Olive admitted last month that mistakes have been made as it laid off 450 employees. CEO Sean Lane said in a message to staffers posted on Olive’s website that “Olive’s values of ‘choose vision over status quo’ and ‘act with urgency’ drove us to make significant investments across the most pressing parts of healthcare, scale our teams and move quickly to bring solutions to the market.”

Whether the outfit can right the ship is the question. Asked about the Axios reports, Olsen, who sits on Olive’s board, downplayed them. “Olive is a business that’s going through an incredible growth curve and is on a rapid trajectory, and the reality is that every company that grows quickly is just messy. Companies that grow 300% a year, they are being asked to do three times the amount of things that they did the year before, and it’s not going to be perfect.”

Especially with many VCs investing fewer dollars on less generous terms than last year, “You have to make choices,” Olsen continued. “You have to change strategies. It doesn’t mean that the company is failing.”

You can listen to our longer conversation with Olsen about where else it’s investing in the U.S., the firm’s newest investments, and the changing nature of board seats, right here.