Drive Capital LLC is revving up two more funds that could total more than $1 billion, and widening its largely Midwestern hunting grounds for backable tech startups to the Plains and the South, according to public documents.
Columbus-based Drive last raised $650 million over two funds in January 2020, which doubled its assets under management to $1.2 billion – making it the largest actively investing firm in the Midwest. Columbus-area companies in its portfolio in turn raised nearly $1 billion in growth capital this year, mostly from out of state.
Regulatory filings indicate Drive is seeking to raise a $600 million second Overdrive Fund for later-stage technology companies and a $350 million Fund IV in its traditional seed and Series A space. The forms filed in late September with the Securities and Exchange Commission indicated no money had yet been raised. But a consultant's report to a public pension fund in November projected that IV could actually grow to $400 million and Overdrive as much as $800 million.
A Drive spokesman said the firm cannot comment on the filings. Typically companies do not comment while a funding round remains open to avoid the appearance of publicly soliciting from non-accredited investors.
Public employee pension funds, including repeat investors from earlier Drive funds, have started approving investments in the new ones, according to online meeting minutes.
"We continue to believe that Drive’s highly experienced team, extensive contacts in the industry, strong performance, and a deep and broad attractive market continue to offer a compelling investment opportunity for VCERA," said a recommendation letter to the Ventura County (California) Employees’ Retirement Association from Dan Gallagher, the body's chief investment officer. The pension fund invested $10 million apiece into the two funds in November, according to meeting minutes; it had invested a combined $30 million in earlier Drive funds.
The Tennessee Consolidated Retirement System approved a combined $70 million investment in the two funds on Dec. 8, a spokeswoman confirmed via email. The investment committee of the state of Delaware's Board of Pension Trustees in July agreed to commit $25 million to Drive IV and up to $35 million to Overdrive II, following legal review, according to minutes.
Mark Kvamme and Chris Olsen, veterans of Sequoia Capital in Silicon Valley, founded Drive in Columbus in 2013, and still follow the same investment thesis: Build tech companies in the middle of the country, where they have the best access to the majority of U.S. engineering graduates and Fortune 500 customers – and where Drive has little competition from coastal VCs to get in at the earliest stage.
"The same trends the firm saw in the Midwest in 2013 are evident from the Hudson River to the Rocky Mountains today," said a report for the Ventura County pension fund by the Boston investment consulting firm NEPC LLC. "While this region is larger, the thesis still holds; the 'Driveway' is overlooked by investors."
Early investors included Columbus-based Huntington Bancshares Inc. and Ohio State University. The Ohio Public Employees Retirement System, the largest of three state funds, invests in "funds of funds" that become limited partners in various VC firms but not in Drive directly, a spokesman said.
Drive's first three main funds and the initial Overdrive, which launched in January 2020, have a combined net asset value of $2 billion, according to a presentation attached to the pension fund's agenda. Holdings in its first fund from 2014 today are worth four times what was invested, it said, and a 2016 fund and the first Overdrive each already are worth double. Venture funds typically mature over a decade.
Drive IV will seek about 25 startups from pre-revenue to less than $10 million in annualized revenue, investing $2 million to $15 million in each, according to the NEPC report, which projected both funds would top the totals listed in the SEC filings. Overdrive II would invest about $10 million to $40 million apiece in about 15 later-stage tech and healthcare companies that are growing, with a mix of existing portfolio companies and first-time investments.
The portfolio has seen two major exits: Root Inc.'s IPO at $27 a share in October 2020 – although as of this month shares have dipped below $3. Drive owned one-third of its shares as of April; no filings indicate selling. And according to a November prospectus, Drive owns 4.5% of Duolingo Inc., the Pittsburgh language-learning app that went public in July.
