VCs that cast a wider net have double the support in CA, says this former Sequoia Capital partner

Investor Chris Olsen knows the West Coast VC scene. He spent six years at Sequoia Capital in California before becoming a co-founder Drive Capital in Columbus, Ohio in 2013 based on theory that “the most attractive emerging market is America, just outside of Silicon Valley,” as he told us early last year.

Institutional investors jumped into this proposition. At the very least, they apparently believe that Olsen and the firm’s co-founder Mark Kwame — who has spent more than twice as many years at Sequoia as Olsen — know what they’re doing. Last summer, Drive’s limited partners committed to investing 1 billion dollars more with Drive, bringing the firm’s assets to $2.2 billion.

Still, Drive hoped to outsell its traditional partners on its vision, and while co-investors abound, no other coastal VC has opened an outpost in Columbus despite the work Drive has done to prepare the area. In fact, when asked last week if another non-regional firm had set up shop nearby, Olsen told us in a new interview that the exact opposite is happening. “I read about [VCs coming to the Midwest] on Twitter and I’ve read about it in a lot of different places, but I actually see VCs doing the opposite. I see them concentrating their time in California right now more than ever.”

Olsen suggested that, at least for now, venture capitalists worried about their performance are moving back to the turf they know best. Said Olsen, “The reality is, 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 going to happen. But they’ll ask you, “How did you miss Company Y, which was in Silicon Valley?” They don’t want to miss these things in their backyard.

Olsen insists that’s fine with Drive, which now employs a total of 36 people. For one thing, Olsen says, the region is now home to more “de novo” venture firms being launched regionally; in other words, Drive is not the only local stop for founders, which is important for building an ecosystem.

Meanwhile, using Columbus as a home base for a much broader regional strategy certainly paid off with one of Drive’s deals: Columbus-based Root Insurance. The auto insurance company was founded 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 millions in total.)

Since then, Root’s stock has fallen — it’s currently valued at $11 each, down from $431 two days after it went public — so retail investors likely lost money on the company. But Drive’s 26.1% stake in Root before the IPO was worth a whopping $1.46 billion on the day of the offering. Even six months after Root’s lockup period expired, the company’s stock was trading at $190, still much, much higher than its opening day price of $27.

Of course, like other venture firms, Drive has had its challenges since the pandemic. Specifically, another of Drive’s success stories in the making, Olive AI, is not living up to its promises, according to a series of recent reports from Axios.

The Columbus-based healthcare automation startup, founded in 2012, uses its extensive history of centers (27 in total) as proof that it has finally stumbled upon a business that works. Since last year described himself a robotic process automation company that takes the most tedious tasks out of hospital workers so that nurses and doctors can spend more time with patients. Olive has also been rewarded by investors for its willingness to shift gears. In fact, it has raised a staggering $902 million over the years and last year said it was valued at 4 billion dollars.

But one in particular damn Axios piece which relied on interviews with 16 former and current employees and health technology executives, notes that, by those individuals’ accounts, Olive “inflated its capabilities and generated only a fraction of the savings it promised.” One former employee told Axios in that same April story, “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 had been made as it cut 450 jobs. CEO Sean Lane said in a message to employees posted on Olive’s website that “Olive’s values ​​of ‘choose vision over status quo’ and ‘act with urgency’ have led us to make significant investments in the most urgent parts of healthcare, expand our teams and move quickly to bring solutions to market.”

The question is whether the gear can right the ship. 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 fast trajectory, and the reality is that any company that’s growing fast is just messed up. Companies that grow 300% a year are being asked to do three times as much as 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 a choice,” Olsen continued. “You have to change strategies. This does not mean that the company is bankrupt.”

You can hear our longer conversation with Olsen about where else he invests in the US, the firm’s latest investments and the changing nature of board seats, right here.

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