Drive Capital investors hit a fork in the road

Drive Capital was founded by two former Sequoia Capital partners who wanted a fresh start in the Midwest. But investors in the Columbus, Ohio-based firm have had a bumpy ride lately, and according to our sources, they’re not happy.

It’s a dramatic turnaround for Drive, which announced $1 billion in capital commitments back in June, a healthy amount for a 10-year-old firm whose mission is to invest almost anywhere in the U.S. outside of Silicon Valley. In fact, in June, the firm — co-founded by veteran VCs Mark Kwame and Chris Olsen — appeared to be on a high, with several apparent earnings and fund news that brought Drive’s assets under management to more than $2 billion.

Yet it dates back to September — soon after we talked to Olson about VC doubling back to California—we heard rumblings of a breakup, along with separate plans that Kvamme was making. Then came the announcement last month that the team was splitting up.

Originally, the story was that Kvamme, who logged more than twice as many years at Sequoia as Olsen, was moving to “honorary partner” because, as he told the regional outlet Columbus Business First, 10 years and four funding cycles was longer than Drive Capital originally planned to run. (This came as news to Drive investors.)

This week the other shoe dropped. Columbus Business First reported that Kvamme who racing cars, is not going into semi-retirement but is instead talking to potential backers about a new fund, the Ohio Fund, which will apparently invest in multiple asset classes, including other funds, public stocks, private Ohio companies and infrastructure. The idea is to “focus on the future economic vitality of Ohio,” an unnamed source told the publication.

Olsen now says he’s surprised by the development. We obtained a letter that Drive sent to its limited partners this evening, which reads:

Dear Limited Partner:

An article was published this week stating that our Honorary Partner Mark Kvamme is launching a new investment fund. All of us at Drive were surprised by this news, as we’re sure you were too. While we won’t send you a note every time a new article is published about Mark, we feel that in the spirit of being a good partner, it’s appropriate to provide you with a transparent update on this situation and our relationship with Mark.

After the article was published, we spoke with Mark and learned that the prospect of him raising a new fund was leaked to a journalist from an unknown source. According to Mark, he still hasn’t decided what to do next. Raising a new type of fund is something he’s considering, along with other opportunities in public service and personal endeavors.

We have a formal separation agreement with Mark that prevents him from starting a rival company or fund to Drive. Please note that this was a carefully negotiated agreement to ensure that it significantly protects Drive, the interests of our limited partners, and everything we strive for at Drive.

Again, we don’t intend to communicate with you every time a new article is written about Mark, but in this case we thought it appropriate to provide clarification. If you have any questions, please do not hesitate to contact us [contact information redacted by TechCrunch].

At your disposal,
The Drive team

Olsen declined to comment for this story; we contacted Kvamme and did not hear back. But it’s complicated to say the least.

According to our sources, part of the split is due to the relationship between Olsen and Yasmine Lacaillade, who was Drive’s COO for nearly seven years before leaving the firm in April to start her own investment firm.

When asked about this, a Drive spokesperson played down any tension that may have arisen from a romantic relationship between the two, writing: “Yes, you heard that right Chris and Yas are in a relationship. This has been public knowledge for some time. No comment beyond that.”

Like most venture teams right now, Drive is also finding its portfolio in rougher shape than it was a year or two ago. One of Drive’s biggest exits to date is that of Root Insurance, a seven-year-old auto insurance company based in Columbus, Ohio, that specializes in auto coverage and that held a traditional IPO in November 2020. While the stock initially performed well, it has since fallen, currently valued at roughly $7 each after the reverse stock split, down from $486 per share the day the company went public. Olsen stepped down from the board last November.

The other big star in Drive’s portfolio right now – Olive AI – is trying to overcome its own challenges. The Columbus-based healthcare automation startup, founded in 2012, has long framed its extensive history of pivots (more than 30 so far) as an inspiring story of trying and then trying again. Olive was also rewarded by investors for its willingness to shift gears. It has raised a staggering $902 million over the years and last year was valued at 4 billion dollars.

But the outfit was never all it seemed, according to a series of damn pieces of Axiosand by September the wheels were fast coming loose. Most notably, the company’s chief financial officer and chief product officer were abruptly fired, following numerous C-level executives who also left this fall, including its president, senior director of operations, its EVP of operations and its SVP of payers product strategy.

Olive AI has since said it will sell some of its products and services to Rotera, a company built out of Olive’s own venture studio.

The limited partners are not happy with these collective developments, but as far as we know they have not talked about taking action and it seems unlikely that they will.

First, it is extremely rare for limited partners to organize against a venture firm to which they have committed capital, and only slightly more common for venture capital firms to extend LPs courtesy of a reduction in their commitments.

They might expect Olsen to hit the ground running. He does have 16 years of experience in venture investing and a staff of about 20 people at Drive.

Besides, there’s little interest in creating headaches for Kvamme, who borders on VC royalty. (His father was a partner at Kleiner Perkins; his first wife was the daughter of another famous VC, former Sequoia Capital partner Pierre Lamond.)

Kvamme is heavily connected in Ohio, having originally been lured there by longtime friend John Kasich to take an economic development job. He may also have his own political aspirations. Indeed, a regional investor recently said Business Insider that Kvamme could start a fund designed to support Ohio’s economy as a foundation for a future campaign.

There is a playbook if so. Investor JD Vance launched a Cincinnati venture firm called Narya in late 2019 before announcing his Senate bid roughly 1.5 years later. In late September, according to Cleveland.com, Kvamme co-host one of the donations that helped Vance win that race earlier this month.

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