Chris Olsen left Sequoia in 2012 to start Drive Capital in Columbus, Ohio on a single bet: the best companies in America are getting built outside Silicon Valley (and nobody's funding them).
Thirteen years later, Drive handed its investors $500 million in a single week at a time most funds couldn't return a single dollar.
We talk searching for vacuums, chasing $2B outcomes instead of $50B, when his lead investor pulled out the day he moved from SF to Columbus, why only 100 of 3,500 (3%!) VC firms can raise right now, the welders quitting to drive DoorDash, and why America is the best emerging market on earth.
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Timestamps to jump in:
0:00 America is the best emerging market
8:13 Why this couldn't have happened pre-2006
10:48 Top lessons from 10 years at Sequoia
14:17 Why the "meeting factory" model fails
21:42 Searching for vacuums
24:51 Sequoia passed on a company 10 miles too far
29:37 Greece's GDP equals Detroit's
34:34 The biggest tech companies aren't in SF
40:28 223 meetings to raise Fund 1
44:27 Turning one fund into a product catalog
48:47 The day his biggest LP pulled out
52:08 Fundraising is a persistence game
57:36 Returning $500M in a single week
59:56 Only 12 companies hit $50B in 20 years
1:01:29 Why Drive owns 30%, not 10%
1:05:03 Returns over logos, the carry math
1:10:00 Mindset of VC's outside SF
1:14:19 Being early is the same as being wrong
1:15:54 How AI unlocks boring, giant markets
1:19:22 Investing in catalysts, not sectors or geo
1:25:35 3,500 firms raised, 100 survived
1:31:33 OpenAI won't eat every other company
1:37:46 Compete with yesterday's version of yourself
1:40:19 Small changes, compounding results
Referenced:
Find Chris on X / Twitter and LinkedIn
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Transcript
Find transcripts of all prior episodes here.
Turner Novak:
Chris, welcome to the show.
Chris Olsen:
Thanks for having me, Turner. Thrilled to be here today.
Turner Novak:
So you think America is the best emerging market in the world. Whatâs the thesis behind that?
Chris Olsen:
I do. Look, the reality is that if you travel abroad, itâs pretty obvious that the best opportunity on the planet, the best economy in the world, it is America. Unequivocally. Even when I visit places like China, or look at other emerging economies in Europe, there is no other place in the world that has this much opportunity. We have the absolute best universities, we have the largest economy, and we have this incredible amount of social mobility. Itâs not perfect, but it is hands down better than any other place in the world.
So we look at it and say, âIf Iâm an investor, what do I want to invest in?â I want to invest in that. I want to go long America. And then the question is, how do you do that? How do you invest in America?
The history of America has been a country of innovation. You can go all the way back to things like railroads or chemicals, everything back to the Industrial Revolution. And in this current generation, technology is undoubtedly the answer. Tech stocks globally have grown from zero dollars in the 1980s to about $25 trillion in notional value today, and I only think that goes up from here.
So then, if you start looking at this amazing place that is America and you ask yourself, âHow do I invest in technology?â thereâs for sure an overwhelming cry to go to the Bay and look at the amount of money that is available to founders through the venture ecosystem there. And itâs awesome. I think one of the greatest inventions America has ever come up with is Silicon Valley, because it subsidizes the research and development of new technologies, and it can afford a lot of failures.
If I look historically over the last fifteen years in venture, I could pretty much distill the companies into two inventions that have been successful. Itâs been mobile, and itâs been cloud. Since then weâve been looking for the next platform shift, and whether itâs cryptocurrency or additive manufacturing or 3D or VR or AR, there are lots of fits and starts. One of the challenges is that unless youâve got access to large amounts of money, the initial application of these technologies is cost-prohibitive.
Weâre in this generation now of LLMs. Two years ago, to build an LLM it wouldâve cost $1 billion, and you wouldâve needed the greatest computer science minds in the world to solve this problem. Today, I can stand up an LLM and run it on a laptop, because itâs been so heavily subsidized by the venture community in Silicon Valley. Thatâs fantastic, because now once these technologies get developed and turn into what could be the next platform, and thatâs what weâre seeing now with AI, itâs not going to stay in the Bay Area. If it stays there, then by definition it will be a failure.
What we get excited about is that across America, ambition is everywhere. Every city you go to, you find these hyper-aggressive founders who are world-changing, and if they get access to the same level of venture resources they would anywhere else, then you unlock enormous potential. Whether itâs Chicago or Dallas or Columbus or even New York, youâre seeing this growth in the overall American innovation cycle that weâve never seen before.
That to us is the opportunity. There are tons of venture firms focused on investing in that Bay Area ecosystem, which is great. And there are very, very few of us investing in this broader American innovation cycle. It is truly the opportunity of a lifetime. If it works, it solves this massive problem for America that really sustains our independence and our world domination.
Because if the economy of tomorrow is only available to the one percent of people who live in the Bay Area, America as a country is upside down. It wonât work. By contrast, if we can unlock the potential for founders who are building anywhere in America to build world-class companies that have the ability to go public, it really starts to perpetuate a momentum that propels America into this next generation of progress and prowess. And itâs been super exciting to see it all unfold since we started the firm back in 2012.
Turner Novak:
So when you say that, I think: okay, Silicon Valleyâs been around since the â50s, kind of. Itâs been around longer than that. But weâve had this innovation in the Bay Area, specifically commercialized venture funding, for at least fifty years. At this point weâre very developed. So why is it that now thatâs happening? Shouldnât it have happened forty years ago, thirty years ago, twenty years ago? Why didnât it happen? And why is now the time that itâs actually happening?
Chris Olsen:
I would argue that it wasnât possible to happen until really very recently, and thatâs because of a very simple problem of access to technology.
When I worked at Sequoia, we had this almost ancestry.com map of the people who were building these companies, and it went from internet companies like Google all the way back to the semiconductor companies of the 1970s, National Semiconductor and that kind of thing. What was happening was there was a talent pool that understood these technologies, and as technology kept evolving, it went from semiconductors into the compute layer, then the compute layer into the network layer, network layer into the cloud layer. The knowhow of how you actually build these technologies was a scarce commodity.
Not that long ago, right before the iPhone, around 2000, you had to build your own cloud infrastructure. You had to buy servers and rack them and stack them, and then write the software code at that bare metal layer. There just are not a lot of humans in the world who know how to do that at scale. And the ones who knew how to do it were all based in the Bay Area.
But in 2006, you had this moment, and it was truly a watershed moment for the world, where cloud computing took what was previously this very scarce knowledge set and democratized access to it. Suddenly, with an internet connection and a credit card, you could access world-class super compute infrastructure from any corner of planet Earth. It really unlocked a global potential.
Thatâs what created the rise of the Chinese startup system. Thatâs what created the rise of the European startup system. And that is what has also catalyzed what weâre seeing right now, which is the US startup system, but broadly US, not just Silicon Valley. Itâs a major watershed moment that weâre able to take advantage of.
Turner Novak:
So you were at an interesting spot to start to think about and identify this. You had joined Sequoia in-
Chris Olsen:
2006.
Turner Novak:
In 2006. You were investing their growth fund. Iâm interested in what you learned while you were there. And I know thereâs the first day you were at Sequoia, the first investment committee, that was like the very first seeds of where Drive might be possible. So what did you learn while you were at Sequoia? What were the biggest lessons?
Chris Olsen:
Look, the reality is that Sequoia is a truly special firm. They have an unparalleled track record of success, and itâs over fifty years. Theyâve been through ups and cycles and downs and cycles. Theyâve been through generational transitions inside the firm. Theyâve been through a global expansion and a global contraction. And amidst all of that, somehow they always emerge with the very best names in their portfolio.
Having the opportunity to be there, to learn and be trained there, is truly one of the greatest gifts Iâve ever gotten in my life. While it would take me an enormous amount of time to describe everything, I could probably distill it into a couple of really important things.
The first thing you learn is that to be successful in venture is extraordinarily hard. The odds are dramatically against you. Itâs not like half the companies fail and half of them work. No, ninety percent of the companies fail, and on an annual basis there are maybe 10 companies that get started that are going to get to over $100 million in revenue. The ability to not just identify those companies but to then grow them requires a level of work ethic, discipline, consistency, and knowledge that is very, very hard to come by.
Their answer to that is, first and foremost, work ethic. Itâs a firm where a lot of the GPs are immigrants, and thatâs by design. This is a stereotypically very hard-working group of people, and that continues to this day. I remember the week after Pat Grady had Zoom go public amidst COVID, this meteoric successful investment, he did something like seventy-five meetings the next week. Itâs that kind of mentality the firm has, where youâre only as great as your next investment. Itâs driven by this understanding that this is an extraordinarily hard thing to do, and to be successful you need to show up with an appropriate level of standards and discipline and work ethic. So thatâd be the first thing.
Turner Novak:
How do you know what to focus on? You can say, âI work really hard,â but you might be working on the wrong things. Is there a skill set of knowing what the most important things are?
Chris Olsen:
There is, for sure. We used to describe it in broad terms, and we do this at Drive: what we believe is that the only way to be successful at this is to be thematic. What I mean by that is the opposite would be reactive, or a network-based VC. You can do that as a VC. The inbound deal flow is definite. We get over eight thousand inbound opportunities a year, and we could build a meeting factory and meet with everybody and go through it.
Turner Novak:
Meeting factory. Thatâs an incredible word. I hate the idea of working inside a meeting factory. That just sounds like a rough existence.
Chris Olsen:
Itâd be awful. The problem isnât that itâs bad deal flow or low quality. The problem is that itâs random. You canât control who emails you next. So youâd fill your calendar, youâd be super busy, and youâd go from meeting with a cybersecurity company to an AI infrastructure company to an inference company to a social networking company. Itâs venture, so I promise you every founder is charming, and every pitch deck has an up-and-to-the-right chart. And youâre left with: how do you discern the difference between good, great, and exceptional? Itâs impossible. Itâs just not feasible.
By contrast, what we believe is that to be successful at this you have to develop some kind of insight and subject matter expertise by being thematic. Itâs a very hard thing to do, because it means you have to be focused and disciplined. And if youâre successful, itâs a get-rich-slow thing. Meanwhile, youâre going to open your inbox and have 15 emails from people trying to get you to invest in their company. In my inbox, I get lots from other GPs, so these are highly credible investment opportunities, and you just have to say no to all of them, because theyâre a distraction.
Turner Novak:
Yeah, thatâs the thing. Any deal flow you get from another VC, the email always looks really good. Only the great things are being mentioned. So it all looks like, oh, this is worth taking a meeting.
Chris Olsen:
Well, and itâs already been venture backed, so itâs going to have a lot of the qualities of a well-run business typically. But to ignore all of that is hard, because the temptation to take a meeting with a company thatâs already tripling on revenue is very, very high.
Thatâs one of the secret ingredients in the secret sauce: by being focused and going deep for 90 days in a theme, what you start to be able to do, if youâre just meeting with robotics companies, is robotics, robotics, robotics, robotics, robotics. The first thing it does is force you to zoom out and consider this theme amidst a globally relevant set of companies. Iâm not just going to talk to seed stage companies. I need to consider public companies, and companies based in China, and companies at the research phase.
By doing that work, what youâre going to find is that sometimes the answer isnât venture. Sometimes the answer, if you want to invest in humanoid robots, might be going and buying Tesla stock, because theyâre probably the leading manufacturer of humanoid robots. Thatâs hard when youâre a venture capitalist and you donât buy public stocks. So what do you do? You have to just pass on that theme and have the confidence and the faith that the next one is coming, so go focus on the next one.
Itâs that willingness to do that that also makes you able to help the founders after youâve invested. When it does work out and I do invest in a robotics company, I tell the founder, âThis is why weâve invested in your company,â because it always has to be that you are the worldâs best at this thing, whatever it is youâre doing. And I can tell you that because Iâve talked to the customers, and theyâve said these are their pain points, and I know youâre not there yet, but your product is closest to filling them.
Iâve also talked to all these other companies in the space, and I know who the top engineers are. I know which segments are already starting to develop revenue traction. I know who the VCs are that are going to do follow-on funding into this type of company. Youâre unlocking a speed factor, where youâve been able to come in and immediately offer this map of where their world is. And itâs not just a competitive landscape scan. Itâs everything from knowing you need to go to this conference, you need to meet with this consultant, you need to get to this customer, you need to go talk to this person, we need to recruit this person to the board.
There are all these things that go in there, and if youâre able to do that, you can change the speed with which a company will be successful. Itâs a less popular sentiment today, but in my experience, founders are long on vision and almost by definition theyâre first-time CEOs. That just needs to be understood, because a lot of them will end up trying to reinvent everything, and a lot of times that tuition of them learning how to do these things slows them down.
Our ability to help a company thatâs gone from zero to one go from one to a billion comes from our experience of knowing how to plug all these different elements in along the way. If we get it right, you tilt the scales in favor of the companyâs success. Venture is not stock picking. Itâs very much the opposite of that. I think ninety percent of the value that accrues in our portfolio comes from the work that we do with the companies after weâve invested. Itâs a very active role. The founders we work with bring in Drive because we unlock a universe of resources they donât have, and we bring those resources in in a way thatâs constructive and complementary to everything theyâre doing.
Itâs hard to do all those things. When itâs a Tuesday and youâve got to figure out how to recruit a machine learning engineer to Columbus, Ohio, these are the real things that determine your rate of success. But if I can help you do that, I can unlock your potential.
Turner Novak:
So it sounds like: work really hard, know whether a startup or a different type of company will win a market and make the most sense to invest in, and then actually try to help move the needle.
Chris Olsen:
Yeah, Iâd define it as: work really hard, be thematic, and then the third thing we believe a lot in is this idea of first principles and searching for vacuums.
What I mean by that is, when you start looking at a decision, itâs so easy for a group of people to start reasoning with anecdotes. Facebook does it this way, Google does it that way, Anthropic does it this way. This reminds me of when I was involved in this prior situation, and we did it this other way. The problem isnât that those anecdotes arenât real. The problem is that the ingredients for that scenario are entirely different than what we have here. So what we believe is that when you make decisions, you have to limit yourself to the knowledge that is within the confines of this decision itself.
It doesnât matter how other people have solved it, other than that they might inspire a strategy. If youâre recruiting machine learning talent, you have to compete with Google. And the way Google is going to compete for that talent, theyâre going to out-Google you. Theyâre going to outspend you. You canât even do that. So bringing those tools to recruit that talent to your company isnât going to work. Youâve got to find the other points of leverage that you have. We define that as first principles: using only the information that is within this room to make this decision.
And the second thing, when I say we look for vacuums, is that there is oftentimes a disconnect between what is usually described as conventional thinking, or best practices. Anytime you run into a scenario where the data suggests one thing and it is the opposite of conventional thinking, we get excited. We define that as a vacuum. Youâve found a space in the world that is not occupied, and itâs a matter of time until somebody fills that vacuum. And if itâs us, then we win. The idea is, how do you become a vacuum identification machine? The best companies in the world, whether theyâre venture firms or operating companies, thatâs what theyâre doing, and constantly iterating through that again and again and again.
Turner Novak:
So investing in vacuums. If somebody uses AI to scrape this conversation and just hears âinvesting in vacuums,â theyâll go buy Dyson stock, or Hoover or Bissell. But no, itâs the actual vacuum. Itâs almost like the narrative has not adapted to what reality is saying.
Chris Olsen:
Yeah, and frankly, that was what happened when we started Drive.
Turner Novak:
So tell me. I know thereâs a story. It was your first investment committee at Sequoia. There was a company you guys were looking at, and you didnât invest for a certain reason. What happened?
Chris Olsen:
So this was in 2006. Iâd just been hired at Sequoia, and it was very clear to me that I was the thing that didnât fit in the room. You looked around the room and itâs like, okay, thatâs Mark Stevens, heâs on the board of NVIDIA. Thatâs Michael Moritz, heâs on the board of Google. Thatâs Roelof, former CFO of PayPal. Thatâs Jim Goetz, the founder of Vital Signs. And then there was Don Valentine, the founder of the firm. Thereâs Doug Leone, one of the greatest venture capitalists, who sits on more billion-dollar companies than any VC ever. And then there was me.
So I figured, whatever Iâm going to do, Iâm going to keep my mouth shut and listen, because the fact that I got into this room somehow, Iâm self-aware enough to know Iâm fortunate, and I needed to take advantage of that.
The thing that struck me, though, wrestling through all the things Iâm describing, which was what Iâd been trained in, was discovering that even a partnership like Sequoia is susceptible to the same thinking. The thinking at the time was that you could only invest in companies in Silicon Valley. That Silicon Valley was a special, one-of-a-kind place, and that even a company based 10 miles north of San Francisco, in the example youâre describing, it was a company based in Petaluma, which Iâll never forget. It was about 10 miles north of San Francisco. The partnership loved the company and everything about it, the founder, the market, the product, everything else, but it was based in Petaluma. And so the partnership said, âLetâs pass. This is too far from Silicon Valley.â That was the thinking.
Turner Novak:
10 miles. Thatâs like a 20-minute drive, maybe? I donât know.
Chris Olsen:
Well, I just think it epitomizes the ruthlessness of what Sequoiaâs success had been, which was being laser-focused on winning that stretch between 280 and 101, and making sure they won in that corner of the world. Thatâs one of the reasons theyâve been able to do that for the last 50 years. Thereâs a focus, and thereâs a benefit to that focus. But thereâs also what becomes conventional thinking. When the same people around the table all subscribe to the same belief system, that becomes the conventional wisdom. It creates their focus. And as the market shifts, it created a vacuum. That really happened around cloud computing, where we started to see more and more companies getting started and going public even in these other American cities, and they just werenât getting the level of attention that a founder would get in Silicon Valley.
Turner Novak:
So what was the early data? What were you seeing? You talked about this vacuum. What did the numbers show versus what everyone was thinking at the time? Did people not put together, âOh, thereâs this Duolingo company in Pittsburgh, maybe thereâs an opportunityâ? What was going on?
Chris Olsen:
Number one, I donât think people had looked at the data, which is an interesting thing. We were looking at countries around the world. We were looking at China, we were looking at India. And if I tell you Ohio, we donât think of Ohio as a country. We think Ohio is a state. Itâs part of America.
Turner Novak:
Yeah, I think Rust Belt. I just donât think thereâs any technology there at all.
Chris Olsen:
All of it, right? The death of manufacturing, the automotive industry, all the things. Thatâs the conventional knowledge about these things. And we started to reframe the question, because at the time we were looking at Turkey as a place to go and build a franchise.
Turner Novak:
Interesting. This was Sequoia considering that?
Chris Olsen:
Yeah. They didnât end up doing it, but the fact that Turkey could be on the menu. You start asking questions around the GDP. Whatâs the GDP of Turkey? And suddenly it just dawns on me: whatâs the GDP of Ohio? I had never thought about it that way. It started to unlock these discoveries one after the next, at this macro level around GDP.
This was very recent to when Greece as an economy almost failed. The entire EU almost got taken down by the Greece economy. And then I looked up the GDP of Greece. Do you know the GDP of Greece is the same as the city of Detroit? You start to unpack this. If you reframe the conversation around, letâs not think of it as just one America, letâs think of each of these states as if they were countries, you run across a large number of US states that on a standalone basis would be top 10 countries in the world. And yet the only ones with access to world-class venture services, itâs not even the state of California. Even in LA youâre running into challenging access to venture. Itâs really one city, or maybe two if you count San Jose, out of this entire country.
So it started at this macro level, and then I started to push down and ask why. I would ask people, and they would always give me all the conventional wisdom.
Turner Novak:
So whatâs the conventional wisdom? Somebody might be listening for the first time like, âWhatâs this guy talking about?â
Chris Olsen:
Itâs things youâve all heard before. Theyâre somewhat insulting things. All the smart people will leave and come to the Bay Area. If anybody has ambition, they will come to the Bay Area. Thereâs more money in the Bay Area, so thatâs the only place. Youâd be crazy to build your company anywhere else. This mentality of, all the invention comes out of Stanford. Thatâs the popularly held belief around startups.
Turner Novak:
Is there data that supports that people would say that?
Chris Olsen:
No, of course not. Itâs logos. Itâs news articles. Nobodyâs doing the hard research. Nobodyâs actually going in and asking, âWhat is the research budget of Stanford, and how does that compare to, say, the University of Michigan?â Nobodyâs doing that. I did it. And it identifies this cognitive dissonance, where you have this popularly held belief that all the invention in America is done at Stanford and MIT. Then you look at the University of Michigan and realize the research budget of the University of Michigan is $2 billion a year. And thatâs replicated down the street at Ohio State, which is like $1.5 billion a year, and Wisconsin, and Northwestern, and Illinois, and on and on.
You start to ask yourself, wait a minute, hang on a second. Imagine you were looking not just at Turkey as a country. What if you said, âLetâs look at America as a countryâ? Wouldnât I rather go invest there? Why would I want to go to Stockholm or some remote province in China instead of Dallas or Chicago or Columbus? It was just this simple idea. And then, well, how come no one else is doing this? At first I was like, âI must be missing something. This is too obvious for people to have not done this before.â
Turner Novak:
Because I feel like the common thing I want to say right now is, âOh, the outcomes in San Francisco are just so much bigger. Thatâs what ventureâs all about. Youâve got $100 billion companies, and I canât name a single tech company in Wisconsin. So why would you waste time there? Just move to San Francisco.â I feel like thatâs where the argument just ends. People are usually like, âThatâs the solution, because San Francisco has the big outcomes.â Were people just saying that to you?
Chris Olsen:
Yeah. You start pushing down. We were looking at it and saying, âOkay, whereâs the most valuable cloud computing company in the world? What part of San Francisco is it in?â And itâs like, âOh, theyâre not based in San Francisco?â
Turner Novak:
Yeah.
Chris Olsen:
âOh, wait, hang on. Theyâre in Seattle.â Exactly. Or youâre like, âOkay, itâs Silicon Valley, the largest manufacturer of silicon. What part of San Francisco are they based in?â âOh, actually theyâre based in Taiwan.â The next-generation social network that the whole world is clamoring for, what part of San Francisco are they based in? Actually, theyâre based in Singapore. The next great music company? Actually, theyâre based in Stockholm. You start to find these. Thatâs what I mean by the cognitive dissonance around these things. When youâre in San Francisco, and I was there for 10 years, itâs an echo chamber. It just is.
Turner Novak:
Itâs the narrative. Theyâre good at making you think Spotify is a tech company, so you think San Francisco. Or AWS, you think itâs associated with Silicon Valley. You think Amazon, you think of it as San Francisco.
Chris Olsen:
Totally. And the thing about it is thereâs an insecurity in the Bay Area that makes it great, because it drives a lot of people to work extraordinarily hard. That was kind of what we were discovering. Itâs a very defensive posture around, âWell, Silicon Valleyâs the best forever and ever.â
But these can both be true at the same time. Yes, the Bay Area is amazing, and access to these technologies, now that theyâve been so heavily subsidized, is global in nature. And now the application of these technologies to these other industries is better served to be built in other places, because there are more people in Columbus who know about manufacturing than in San Francisco. People in the Bay Area donât understand manufacturing, because thereâs no manufacturing done there. The economyâs not there. Itâs just not what they do. Or you look at where healthcare is built, and thereâs more knowledge in a city like Minneapolis, where youâve got UnitedHealth and a huge deep-seated base. Or logistics centers around Atlanta. It would be foolish to ignore the domain knowledge that people have accumulated in these other industries outside of technology.
Then understand that what weâre saying is technology is going to transform these industries. So the company best suited to do this will be able to combine a next-generation technology with a domain, and unlock enormous potential. Thatâs where you start running into companies like Duolingo in Pittsburgh, or Root Insurance in Columbus, or Tempus in Chicago, and you start to go down the list.
Whatâs exciting today is that when we started this, people said we were stupid, this is crazy. They assumed something had gone wrong. No one says that now. Now everyoneâs like, âYes, I understand what youâre saying.â Itâs not controversial. I was talking to a friend this morning, and she was talking about Columbus, and how when we started here there was one other venture firm. Thatâs absolutely true. But weâve gone from starting with millions of dollars to now billions of dollars, and this is new resources that weâve never had at this scale before.
Itâs only accelerating as other folks catch on. Weâre seeing 8VC move to Austin. Weâre seeing Sapphire Ventures move to Austin. Weâre seeing everything Elon Musk is doing in Texas. The world is coming more and more this way. And itâs not coming from San Francisco. Itâs coming from the research labs. Itâs coming from people internationally who are immigrating to America. Basically, all of America is rising up right now, and itâs got more resources than itâs ever had before.
Turner Novak:
The phrase I think is a good catchphrase for this is, Silicon Valley moved to the cloud. You can be in Austin and still have the Silicon Valley ethos, mindset, embracing hard things, working hard, understanding failure, understanding the technology, but you donât have to actually be there. I think it was an a16z blog post. Thatâs when you know itâs a thing. a16z has blogged about this: Silicon Valleyâs in the cloud. Thatâs a way I think about it.
Chris Olsen:
Well, look, I think it is more acceptable today than itâs ever been to build a venture-backed company in every city in the world. That doesnât mean itâs more popular, more written about, than building a company in Silicon Valley. But it does mean this momentum is continuing.
Turner Novak:
So when you were raising the first Drive fund, 2012, what were the conversations like with LPs? You had to convince people to invest in this data-backed thesis that was kind of crazy. It was against the narrative at the time.
Chris Olsen:
It was unpopular, for sure. Our conversion rate in our first set of LP outreach was something like 223 meetings. And to get 223 meetings, we had to reach out to a couple thousand different LP prospects. The 223 converted into 19 LPs. So a pretty small conversion rate, 10%, 7%, something like that.
It was a very rude awakening to come outside of a place like Sequoia, where fundraising is a very different thing. We were doing the age-old, âOh, Iâm going to be in city X anyway,â just to try and get meetings. And it put us in a position where you really started to appreciate, man, there is an infrastructure that has been built for the last fifty years for all these earlier venture firms. Itâs a huge advantage, because they donât have to spend time fundraising and failing in front of LPs again and again and again.
Turner Novak:
I saw a really interesting screenshot of an article, and it said, âWhen Benchmark goes out to raise a fund, they send an email on Tuesday night before they go to bed, and then they wake up on Wednesday and the fund is closed.â Iâm like, âThatâd be nice,â for someone who has to do this.
Chris Olsen:
Theyâve earned it. Theyâve earned it over a really long period of time where theyâve demonstrated success. The reality is, the early days of Sequoia, Donâs stories of early fundraising in the â70s and â80s, were not the Sequoia of today. They were very much the same story of grinding with this unpopular idea of building venture in California, when at the time the conventional wisdom was that you could only do this in Boston. There were firms like Venrock and Mayfield, and maybe it was happening a little bit with Sevin Rosen in Texas. These are all firms youâve probably never heard of anymore, right?
Turner Novak:
Iâve heard of all those, but not Sevin Rosen. Iâve never heard of Sevin Rosen before.
Chris Olsen:
I think the reality is Silicon Valley had this moment when it emerged. And when it emerged, the stalwarts got picked. Sequoia, Kleiner Perkins, Benchmark, Accel, and very recently Andreessen. Breaking into that established ecosystem is very, very challenging. These firms have weaponized decades of reputational build into unfair advantages for themselves, and they are excellent at doing it. Itâs very challenging to think you could tap into that and compete with it.
We think history is repeating right now, where the American venture firm is yet to be defined. Our first ten years of doing this were extraordinarily challenging. Iâve worked harder on this than Iâve worked on anything in my entire life. And I have no illusions that the next ten years are going to be equally challenging. But weâre doing it with way more resources now than we used to, so we should be able to keep growing faster and faster. Our mentality is that we need to fill our opportunity in this market and establish ourselves the same way those firms in Silicon Valley got established back in the â70s, â80s, and â90s. Weâre doing that in America today.
Turner Novak:
For someone whoâs never started a venture firm before, how does that resourcing change? Youâre raising your first fund versus, I actually donât know what fund you guys are on, but I think the last one was $1 billion or something you announced. Magnitudes of difference in size. Whatâs the difference for somebody whoâs never done this before?
Chris Olsen:
There are a couple of different things. The real difference is that when we started, we had one product, and it was a venture product. That was a $250 million fund. As weâve been successful, weâve been able to launch other products. Now we have a seed product, a venture product, a growth product, and a co-investment product.
So weâre able to offer more than one product to the market, which is very valuable to a sales force, our IR team. When they meet with a potential customer, maybe that customer just wants to do one of those things, and we can offer them that. If youâd spent all the time to get that meeting and you only had one product, you wouldnât be able to. So having a bigger product catalog is the real benefit you have now. Those products have to perform, but itâs a huge advantage, because you increase your success rate. Your conversion rate goes up, and thatâs proven out over time.
Turner Novak:
Thatâs like any business. The more products you have, in some cases itâs easier to get more customers. Maybe not, but-
Chris Olsen:
Yeah, if theyâre good ones.
Turner Novak:
Thatâs true. Good products.
Chris Olsen:
Weâve had failed products, too. We learn from those and iterate and evolve them to make sure theyâre successful.
Turner Novak:
What have been some of the failed products?
Chris Olsen:
Letâs see. I think our first iteration of our seed product and our growth product, those werenât great. We had to really revamp those and look at, wait a minute, why arenât these products working?
Turner Novak:
So whatâd you do, and then whatâd you change?
Chris Olsen:
A couple of things. Weâre a financial services firm, and the first thing you have to do is measure everything. Iâve believed that since the beginning. Weâve measured absolutely every single thing we can capture, and used that to develop an understanding of, okay, on seed, Y Combinator has like a forty or fifty percent conversion rate from seed to Series A. Okay, that should be our benchmark for success. If our benchmark is less than that, now weâve got the intelligence to go and fix it. Our initial conversion rate on our seed program was in like the ten percent bucket, which was really bad.
Turner Novak:
Oh, compared to that benchmark, thatâs not good at all.
Chris Olsen:
Yeah. So we looked at that and said, âThatâs not sustainable. We need to fix that.â
Turner Novak:
So whatâd you change?
Chris Olsen:
You have to start looking at a couple of things. A lot of this comes down to, weâre clearly not picking the right companies, and when weâre picking them, weâre clearly not helping them. And when weâre helping them, maybe weâre actually hurting them.
Working through that process of understanding, the right way to support seed stage companies is very different than the right way to support venture stage companies. Youâre not going on the boards of seed stage companies. Youâre going on the board of venture companies. So figuring out the way to create and scale content, figuring out a way to get them access at scale, figuring out how to establish what the standard for success is and helping them unpack that, weâve been able to increase our conversion rate from ten percent to twenty-five percent. In this next batch weâll get closer to thirty or fifty percent. So itâs finding those measures that prove how well youâre doing, and then using that to iterate up to improving.
Turner Novak:
Interesting. Thatâs good validation. You said content is the best at early stage. Thatâs basically all I do. So thatâs good validation. Iâm just going to take that and-
Chris Olsen:
Good. Exactly. Ignore everything-
Turner Novak:
-else. An interesting aspect of the Drive story is the day you were moving from San Francisco to Columbus. What happened? It was probably not what you wouldâve wanted to happen.
Chris Olsen:
Yeah. Look, this is 2013. What I initially told myself was that I wanted to continue to live in San Francisco, and what became very clear early on was that for me to do this, I couldnât do it from San Francisco. I had to do it from this region. There was no other choice. So I had to move. But I wasnât going to move until it was real. Iâm not going to uproot everything before then.
So what ended up happening was we were about to have our first close. It was on $175 million. It had been through committees, it was in legal, and I was like, âSweet, weâre a real boy, letâs go.â So we called the moving company, they show up at the apartment, weâve got all the boxes packed up and ready to go. The mover comes in and heâs like, âAll right, weâre going to Columbus.â And right then my phone rings.
I get the news that our single largest LP commit in that $175 million, which was a $50 million check, had changed their mind and they were out. That meant we werenât going to have a first close, because we had to get to a minimum in our docs, and weâd said $175 million. So suddenly I had this moment of real life where you have to choose. What do I do? These guys are in the apartment. This was a shutdown moment: admit defeat, or just find a way to have faith and move forward.
I hung up the phone, and at that very moment, for whatever reason, my daughter, who was one year old at the time, was throwing a fit. Sheâs crying, on the floor, having a tantrum. And we got a picture of her sitting right in front of the moving boxes. I love that picture, because that is how I felt inside. All of this effort and everything else just wasnât enough, and it was a very frustrating moment.
I had this introspection to look at it and say, âWell, what are you going to do?â How do I convince a founder to work with me in the future if I donât take this moment and use it as an opportunity to persevere through some adversity? So I decided, letâs pack up the truck and go and discover that setbacks are part of building any business. And if you canât get good at them, then donât do this. Donât start a business. Youâre signing up for an unsustainable emotional level in your life. For me, that was very defining. And from there we found the next LP and the next LP, and eventually we got to $250 million for that first fund.
Turner Novak:
Did the strategy change at all after that? I guess you were in Columbus at that point.
Chris Olsen:
No, the strategy was really the same. One of the things you discover in fundraising is that itâs sales. To do it right, youâve got to build a funnel, work the funnel, and your conversion rate is going to be what itâs going to be. You can move that on the margin, but if youâve got an acceptable conversion rate, you can use it to define how much work you need to do and the time you need to do it. Thatâs really how we solved it.
Turner Novak:
Was there a thread of, this specific LP persona or behavior is the most likely to convert, and you leaned into that?
Chris Olsen:
Yes. And this is still true to this day. What weâve discovered at Drive is that there is a mature LP base thatâs been investing in venture for 30 years, 50 years, 20 years, 10 years, whatever their number is. Those are really, really hard accounts to get into, because theyâve got their allocation, theyâve got their managers, and to get in, they have to kick one out. That doesnât happen very often.
By contrast, if you find an LP who is relatively new to venture and hasnât picked all of their managers, we have a really good shot at getting into those accounts. In the beginning, thatâs what we did. As weâve gotten more established, weâve been able to crack open some of those more mature LPs. But itâs really hard to do that in the beginning, because youâre up against a portfolio strategy that you donât define. Youâre not pitching the person in the room whoâs nodding their head and saying yes. Youâre pitching against an established portfolio thatâs already at, letâs say, twenty percent in venture. And if their allocation target is eighteen, the meeting is over.
Iâve learned this. Weâre wasting time, because thereâs no version of the world where somebody whoâs over-allocated to venture is going to write a memo that says, âI know weâre over-allocated to venture, but we should still invest more into venture. Oh, and itâs in this new firm, new strategy, and itâs in Ohio.â Itâs not going to happen. So youâre better off cutting your losses and getting your time back.
Turner Novak:
Yeah. One of the most daunting is the first time youâre meeting an LP and theyâre like, âWe do two thousand meetings a year and one new relationship a year.â And youâre like, âWell, Iâm going to make the most of this conversation.â But you just kind of know, and in your head youâre like, âThis might take a while. This might be a long process.â
Chris Olsen:
Yeah. And yet, every time I go into that meeting, I convince myself itâs me. I have to believe that. Even though it doesnât work, I have to believe it, because if Iâm going to be that one in two thousand, Iâve got to stand out. And I know my best shot at doing that is being convinced and acting like I am the one. If Iâm not doing that, then thereâs no way Iâm going to.
Turner Novak:
The thing I always hold onto is I only do meetings Iâm actually interested in. So even though Iâll have some friends working in an endowment, and I know theyâre just not investing in me right now, thatâs totally fine. Sometimes those are almost lower stakes, and youâre also like, âSo what are you guys thinking about right now? What interesting things are you seeing?â Youâre learning. So I usually try to approach those conversations like, âAll right, what can I learn from this? Iâm interested in these things.â Make it productive.
Chris Olsen:
Yeah, I donât do that. My mentality has been much more about discovering that things change. And itâs 100% true: if I donât go to that meeting, theyâre not going to invest. That is a certainty. So I know I have to go to that meeting, and I know that if I do enough of them, even though it was no on the front end, something will change. Weâve gotten a number of LPs out of that. Itâs that persistence, being able to show up consistently, so youâre there at that moment of change. Thatâs your advantage.
And I know Iâm willing to go to far-off places that other GPs are not willing to go to. Thatâs my advantage, and Iâm willing to do that. Where other people are like, âOh, letâs just do a Zoom,â I get it, itâs a lot easier to do the Zoom, but youâre not going to differentiate yourself. Youâll be one of those 2,000 meetings.
If you try to convert that very quickly: okay, if Iâm going to be that one in 2,000, how many of those meetings do you have in person? Iâll bet itâs less than 50, because theyâre in some remote corner of a state. Sweet. So now I donât need to be one in 2,000. I need to be one in 50. Great. Well, how many of those meetings in this weird place are with the founder and general partner? Only half of those. So now Iâve got to be one in 25. You can start to use these things as a way to really improve your conversion.
Turner Novak:
You guys also, I think there was a point where you returned five hundred million bucks in a week. Iâm assuming you returned a significant part of your funds?
Chris Olsen:
Yeah. Weâve returned over a billion dollars now, and I think the thing we like about our model is that from an investment product, it produces liquidity in great years, but also in really skinny, lean years too. That comes down to portfolio construction and analyzing the exit market and understanding all of that.
But that was a big year for us. Probably my favorite LP call Iâve ever gotten was in 2025. We had some big exits, and we sent a bunch of money in. And an LP calls us and says, âI just want to say thank you. Youâre our only venture firm, and instead of seeing liquidity this year, there was a tornado in our town, and we were able to use that money to donate to these causes around this horrible thing that happened. If you guys hadnât done that, we wouldnât have had the money to do it.â To me, those are the impact moments where you feel like thereâs real purpose in what youâre doing.
Turner Novak:
So how do you guys do your portfolio construction? That might be interesting to people, because from what I know, itâs not the down-the-fairway Silicon Valley strategy. How do you approach it?
Chris Olsen:
The Silicon Valley strategy is not $100 billion companies. Itâs trillion-dollar companies. Whoâs going to be the first $10 trillion company? Itâs always a competition to get bigger and bigger and bigger. This is an example of a vacuum. Ask the simple question. In the last twenty years, letâs take a trillion dollars off the table, how many companies have exited in America at north of $50 billion? Which is still a lot. Twenty years, $50 billion or more.
Turner Novak:
This is venture-backed companies?
Chris Olsen:
Yeah. Venture-backed companies in America.
Turner Novak:
For M&A and IPOs?
Chris Olsen:
Everything.
Turner Novak:
Maybe 20?
Chris Olsen:
Itâs 12, actually. Itâs not even one a year. Itâs barely one every other year. To me, if you construct a portfolio where you canât generate fund-returning investments unless you have a large number of those outcomes, youâve set the table against yourself. At that point, youâre saying, âI am planning on something to happen that has never happened before.â Iâm not saying it wonât. Iâm just saying thatâs what youâre doing, by definition. Historically-
Turner Novak:
Youâre swimming upstream. Youâre going against the current, really.
Chris Olsen:
Historically, youâre counting on something to happen that has never happened before. It just hasnât. By contrast, if you take that hurdle and drop it from $50 billion down to, we did $2 billion, and we said, âHow many $2 billion outcomes have there been in the last 20 years?â Itâs over 300 between IPOs and M&A events.
Turner Novak:
Thatâs like a couple a week, I guess, or one a week.
Chris Olsen:
It happens all the time. So now, if I can sell companies into that exit market, thereâs more liquidity in that value proposition. The challenge is, to do that, I needed to develop a fund-returning investment at a $2 billion outcome. Well, if I only own 1% of it, the math doesnât work. Even if I own 5% of it, the math doesnât work. And if I have a $5 billion fund, for sure itâs not working. So what it says is, there is an upper bound on fund size. If you want that liquidity, thereâs a fund size you need to subscribe to, and then thereâs an ownership target you need to get to.
Now, the ownership target is a really hard one, because I canât set the price. The market is going to set the price, and the great founders are going to get the same valuations that companies get in Silicon Valley. Thereâs no discount for great companies in any corner of the world. But I have an advantage. Because there are fewer venture firms here, our investments end up not being syndicated very often. So a founder might part with 25, 30% to the VCs, but instead of 10% going to Sequoia, 10% going to Andreessen, 10% going to Lightspeed, we get to consolidate all that and say, âWeâll just buy 30%.â That means we have a larger concentration in our funds, and way larger ownership sizes.
What weâve discovered in doing this is that it actually makes the companies more successful, because they donât have to manage a syndicate. They have to manage one board member and one VC. Instead of feeling like they need to make three phone calls every time they want to do anything, they can do it with one. It simplifies and streamlines a lot of the investment overhead they have to carry. And we back it up by being able to continue investing in round after round after round. Over time, we might accrue a larger position in the portfolio. In some cases, weâve owned as much as 40% of an individual business by participating in multiple rounds.
Now, if you own 40% of a business and they sell for $1 billion, and your fund size is $400 million, you just had a fund-returning investment on a mere $1 billion outcome. That investment product is not sexy. Try and get the newspaper to write the article on the billion-dollar outcome. They wonât write it, because itâs not remarkable. They want to write the article about a trillion dollars here and a hundred billion there. Thatâs what sells newspapers. But what generates returns and what generates liquidity is very different from what sells newspapers. This is one of the reasons our investment strategy has been successful: we focus on this relatively unremarkable but repeatable corner of the market that enables us to generate returns for our LPs even in the hard markets.
Turner Novak:
Itâs a hard strategy to compete with. If I was going to go to LPs and there are two pitches, one is, âIâm going to invest really early, get good returns, Iâm really disciplined, blah, blah, blah.â And on the other side, Iâm a new firm and Iâm like, âIâm going to help you put Anthropic and OpenAI logos on your website.â Thatâs an immediate benefit versus, âHey, in 10 years, I might give you some money back.â For somebody just starting, thatâs pretty hard to go out and say, versus, âIâm going to invest in the hottest companies today, and youâre going to get immediate benefit from it.â
Chris Olsen:
Totally. What I tell LPs all the time is, if you want posters on your walls, donât invest in us. Weâre not out buying posters for you that you can tell everybody you invested in, big company X that everyoneâs heard of already. Thatâs not what youâre going to get with us.
Weâre just saying that when those happen, they need to be real drivers of return. We have companies in our portfolio that are raising at $30 billion valuations. Weâve got companies in here that are as world-changing as anything out there. But when it happens, our strategy is that we should be rewarded for that, because they donât happen very often.
Turner Novak:
Yeah, like I have a portfolio company I invested in at $12 million post, and their last round was at a hundred and seventy-five million. Itâs a real company. Theyâve grown like 4x since that round late last year. If they exit for $400 million, itâll return my fund, and I think it could, you have to get lucky, but it could be a $10 billion company. Versus if I need a $10 million outcome to return the fund, you start to get nervous if thatâs not going to happen. Itâs like a parlay in gambling. You donât need to hit four parlays to make money. If you hit that crazy parlay, itâs a 50x fund. Thatâs why people do venture capital: Iâll give you a little bit, and thereâs the chance this thing returns the whole portfolio. Obviously it doesnât happen that often, but you want to be able to think that it might if things go right.
Chris Olsen:
I think itâs just that thereâs a different strategy for building that venture return, versus the one I just described to you. Youâre going to get a lot more revenue from fee income than from carried interest. Thatâs another way to go about it. I think thereâs a talent retention question in that that people need to work through. If peopleâs carry isnât going to be worth anything because theyâve got to return some giant amount of money before they get it, theyâre going to start leaving and starting their own firms, because theyâll eventually get to the math on this. So you have to have something else in there. Maybe theyâre getting equity in the management company, some other way to compensate people. Otherwise you develop a talent retention problem over time. But there are a lot of different ways to do it.
Turner Novak:
So you do need fees, and you need a valuable management company, in a sense?
Chris Olsen:
If youâre down that strategy, yeah, for sure. How else are you going to pay people? For example, we were looking at some of the best outcomes last year. There were outcomes last year that were like $30 billion, and you do the math on how much some of the firms were able to get from it. Letâs say youâre a junior person who sponsored this round into the company. Say you had a 7x on your investment, a 10x on your investment. And then you ask, âSo how much carried interest did you get on that?â And they go, âI didnât get any carried interest.â âWell, why not?â âBecause it was a great return, but the fund was so big, weâre not into carry yet. We havenât paid out any carry.â So itâs very, very challenging.
Turner Novak:
So how do you approach it at Drive? Whatâs the strategy to work around that?
Chris Olsen:
Keep the fund size small. And then we have a co-investment strategy that works really, really well, where weâre able to simultaneously speak for larger checks. We donât get economics on it, which our LPs are fine with, because they get a cheaper investment product. So we retain ball control, itâs better economics for our LPs, and it keeps our fund sizes at a level where weâll get into the carried interest in every single fund.
Turner Novak:
Okay. So an interesting contrast: you mentioned there was one venture firm when you moved to Columbus. Broadly across the rest of the US outside the coasts, outside San Francisco, what is the general mindset of venture capitalists located outside Silicon Valley? Maybe this is back when you first started, maybe itâs still the case, but what was the general approach to doing venture in these markets?
Chris Olsen:
Itâs hard to stereotype it. What I think weâve brought that wasnât here before is an understanding that you can build multi-billion-dollar companies in all of these US cities. And if you believe that, then you only want to spend time on those. So weâve brought a level of expectation for whatâs possible that might not previously have been widely shared, or might have been dismissed as crazy.
Once youâve done it once, once youâve had a company in your portfolio that turns into one of these multi-billion-dollar outcomes, you realize itâs an infectious thing. Youâre like, âWait a minute, thatâs all I want to spend my time on, working on those kinds of opportunities.â It brings a focus to your investment strategy thatâs different. Itâs very akin to Silicon Valley. It doesnât mean all these businesses we invest in are going to be successful, and it certainly doesnât mean the businesses we donât invest in arenât successful either. There are a lot of different ways to build companies. But if youâre building these billion or multi-billion-dollar outcomes, we have the right products, the right services, and the right funding to go after them.
Thatâs really what weâve tried to focus on, and I think weâve been able to prove it now. We have twelve companies in our portfolio now that have over $200 million in revenue. Weâve been able to send back $500 million two years ago, over $500 million last year. Weâre at over $1 billion of DPI back to our LPs. Weâve proven that the model is working, and now weâve been able to repeat it with larger funds. These twelve companies are maybe not as well known yet, but theyâre about to be. I truly believe weâre on the precipice of a breakout understanding for everybody around how much potential there is in this market. People will start to appreciate this, and what I hope is they continue to more heavily invest in it, by starting new firms, starting new companies, and more LP dollars coming in.
Turner Novak:
So in theory, tons of competition, everyoneâs like, âOh, this is good,â everyone else comes in. Do you think thatâs going to happen, and youâre going to have to adjust a little bit?
Chris Olsen:
I hope so. Like I said, we see 8,000 companies a year. That doesnât mean the other 7,980 companies we didnât invest in were uninvestable. They just werenât our flavor. What would be amazing is if some chunk of those found VCs that were also doing this strategy here, and then we had the opportunity to do their B round. Suddenly you start to create this cycle of trading between the venture firms that makes all of us more successful. Thatâs kind of our hope for what comes in.
What certainly hasnât happened is more venture firms coming to Silicon Valley as Silicon Valley has become unsuccessful. That is not whatâs happened. What has happened is the size of outcomes has gone up over time. And while itâs true that the frequency of those outcomes maybe isnât what weâd like to see, the trend is very clearly in that direction. Iâm unaware of any corner in the world where people invested more money and saw less success.
Turner Novak:
I mean, doesnât it happen in most market cycles, like bubbles? Didnât venture invest like $10 billion into crypto in the first quarter of 2022 or something?
Chris Olsen:
For sure, there have been cycles that have been booms and busts. But in each of those busts, there have still been winners. The failure of the internet produced companies like Google and Amazon. The failure of smartphones created all of this app ecosystem and everything thatâs there. There have been winners in each of these things. Thatâs why more money has gone into venture. Up until fairly recently, until like 2021, you saw an annual increase into venture. And even last year, you saw a giant number go into venture. Now, LPs to GPs, not quite there, because not every venture firm wins.
Turner Novak:
Itâs just natural market cycles. But the other interesting thing I always think through is, I feel like investors are usually right about the thing thatâs happening, itâs just the timingâs usually off. In 1999 we were like, âOh, youâre going to be able to order groceries to your door within half an hour,â and we were probably off by like 20 years. It still happened, we just got the timing wrong. We got a little too excited about it.
Chris Olsen:
But thatâs still the same. We say this all the time: being early is the same as being wrong. The reality of these things is that your timing has to be correct.
Turner Novak:
Yeah. So thinking about timing today, what is the current Drive setup? Whatâs the current thesis, what are we investing in today as a firm?
Chris Olsen:
Weâve got a seed program, a venture program, a growth program, and a co-investment program, where weâve been able to flex down to $500k seed stage financings and flex up into speaking for as much as $1 billion in an individual round of financing. So weâve built what I describe as feature parity to any venture firm on planet Earth. And itâs feature superior in that we frequent these markets more than anybody. We have somebody who is in Atlanta every single day. Heâs there on Sunday. So the ability to be on top of an ecosystem like Georgia Tech, or University of Michigan, or wherever, we have a very strong advantage in doing that.
Thematically right now, you couldnât have dreamed up a better scenario. The cost to access AI has fallen so precipitously. And what weâre finding again and again is that there are founders living in the center of the US economy, experiencing the pain point of something like commercial brokerage, saying, âMan, this AI thing unlocks my potential to do commercial real estate loans.â We just invested in this company out of Chattanooga where theyâre using AI to go from doing one loan a month to one loan an hour. Or we have another company using this to help individuals get access to durable medical equipment and medical supplies after theyâve left the hospital.
These are boring markets, but theyâre also enormous. The durable equipment healthcare market is a multi-tens-of-billions-of-dollars market. The commercial real estate market is a trillion-dollar market. Whatâs exciting is that the domain knowledge our founders have in these cities, because theyâre living in these industries, is now getting unlocked in terms of company potential by these next-generation technologies that are suddenly affordable.
Turner Novak:
When I think about the traditional Silicon Valley business, these arenât necessarily that. So you think itâs this new technology coming online with LLMs thatâs enabled more companies to fit the profile of, âHey, letâs raise some venture capital, and weâll scale really quicklyâ?
Chris Olsen:
I donât know that itâs that different from whatâs in Silicon Valley, because Uber is a transportation company. You think through the list of examples. Itâs very much akin to what you would see in Silicon Valley, with the exception that when weâve looked at the frontier research labs started here for AI, those are relatively unattractive investments to us, because their access to capital just isnât there. If you need to raise a trillion dollars, I wouldnât recommend doing it here. That Iâd recommend doing in Silicon Valley. But the application of LLMs to these end markets, youâre better suited to do it here.
Turner Novak:
So how do you think about what youâre investing in? Do you say, âThis company is based in San Francisco, weâre not interestedâ? Or, âWeâre only interested if the companyâs based in Boulderâ? How do you think through the lens of this?
Chris Olsen:
Itâs not that. We take the opposite approach. Our attitude is, letâs be thematic, and letâs identify when a catalyst has occurred. What do I mean by a catalyst? Weâre not covering sectors. Weâre not covering financial services and healthcare and industrials. Weâre looking for catalysts, like the Durbin amendment to the Dodd-Frank Act making it economically unviable for large banks to continue doing card processing. Itâs going to unlock access to banking rails. Thereâs going to be a successful fintech revolution. Letâs go find the best companies to take advantage of this new change in legislation.
Turner Novak:
Did you invest in anything?
Chris Olsen:
We have, yeah. We invested in a leading fintech called Koho out of Toronto. We invested in a payroll company out of Minneapolis called Branch. We invested in the leading family finance company out of Atlanta called Greenlight. So thatâs an example of a theme that played out through multiple investments across the portfolio. But never in that did we ever say, âIâm not going to meet with Company X because theyâre based in San Francisco, or because theyâre not based in America.â Quite the opposite. For that fintech thesis, we looked at companies all around the world, because what we needed to be able to do was tell ourselves that these companies are the market-defining companies in their sectors. Thatâs what was important for us.
Turner Novak:
If something is a market-defining company in its sector, do you ever run into Sequoia, a16z poking around? Like, âThereâs this company we really like, itâs based in Atlanta, but man, weâve got Kleiner showing up here.â How does that usually go?
Chris Olsen:
Yeah, it does happen. Now, itâs usually not Pat Grady showing up in Atlanta. Itâs usually the junior person, or itâs âLetâs meet on Zoom,â a remote approach to it. Weâre able to differentiate by showing up. We frequently get told by the entrepreneurs, âWhatâs weird is youâre the only venture firm that actually comes and sees me.â So by just showing up, youâre able to differentiate yourselves. Now, later stage companies are a different story. Companies doing $20 million or more in revenue, that is a global market, and we find those businesses have access to capital markets at scale, which changes the investment dynamics.
Turner Novak:
So you really are finding the early between $1 million and $20 million that doesnât make economic sense yet for a massive pool of capital to send a lot of resources at. You kind of just have to find them early, essentially.
Chris Olsen:
Early is part of it. We try to find the market-defining company and have the fundâs infrastructure to invest in it at any stage where thereâs a venture return to be had. If we look at it and feel like from here thereâs only a 3x return, thatâs outside our investment mandate. Thatâs too low a return for us to accept. Weâre happy to hold for over a decade, but if the valuation is just way ahead of where we could eventually get, we canât do that. Weâre not saying, âWeâre only going to look at companies in this financial profile or in this stage.â We look at it more thematically, because our attitude is, if we get it right in these industries, there is the potential for these companies to be worth tens of billions, maybe a hundred billion, maybe a trillion. And if the multiple at that entry point is sufficient to justify our cost of capital to our LPs, where weâre still going to outperform treasuries and hedge funds and the S&P and private equity, then yes, weâll make that investment.
Turner Novak:
What do you think is the benchmark? What should you be putting up in venture? Do you need to do 20, 30% IRR, or is it a multiple basis you think of on the fund?
Chris Olsen:
Because our hold periods are so long, we think about it more on a multiple basis. It puts us in the realm of 4x or better, which is kind of our internal benchmark that weâre shooting for.
Turner Novak:
Does that beat something? Is there a âyou must outperform a certain thingâ? Is that why 4x is usually it?
Chris Olsen:
We think you have to outperform the public markets by ten points. If somebody can earn a 10% return in the S&P, then youâve got to put up a 20% return. It needs to be about ten points better to justify the illiquidity premium for holding onto these investments for a longer period of time.
Turner Novak:
One thing you mentioned is that there might be a time where the valuation seems a little stretched and itâs harder to get excited about it. Is that something thatâs happening a lot for you guys right now?
Chris Olsen:
Itâs always happened. Thatâs been a consistent challenge in the business. We canât set the price. We can say no, but we canât set the price. The marketâs going to set the price. Our advice is always the same: if we run the board, we always advise the founder to take the market price. Donât take something crazy, but if the marketâs at a big number and you can get access to capital at that valuation, how do you argue against that? Weâre willing to admit weâre not necessarily trying to be the highest valuation. Weâre trying to be fair. Weâre trying to be market. But sometimes the market gets ahead of what we perceive as the potential return.
Turner Novak:
What do you think about the market today? When you step back and think, whatâs going on? How do you think through it and make decisions? Whatâs your perception of whatâs going on?
Chris Olsen:
Itâs a really interesting time. There has been a shakedown in venture, the worst that Iâve seen in my entire career, and I think itâs healthy.
Turner Novak:
So what happened?
Chris Olsen:
Well, interest rates went from 0% to 5%. And youâre like, âHow does that affect venture capital?â What ends up happening is, if Iâm an LP managing a $100 billion pool of assets, or a $50 billion pool, and my benchmark for success is 6% or 7%, my job is not to maximize return. My job is to hit that 6% return with as little risk as humanly possible. Because itâs not my money. Iâm managing this for retirees, or for kidsâ education funds. Itâs not gambling. They want quite the opposite. Theyâre trying to risk-mitigate to that 6%.
So when treasuries are at 0%, thereâs no yield. They canât hold whole ranges of asset classes because theyâre underwater, especially when inflation is at 3% or 4%. Suddenly they have to be in a position where theyâre generating return. So what you saw as interest rates remained at zero was increasing allocations to alternatives writ large. Youâd see people get venture allocations up to as much as 40% or 50%, which were kind of unprecedented.
What ended up happening when interest rates went from 0% to 5%, and they did so in an eighteen-month period, which is warp speed for that kind of move, is that suddenly the allocations to venture went down across the institutional asset class. The numbers were pretty daunting. You saw LP commits to venture fall from over $300 billion at their peak to $30 billion. Thatâs a massive change.
Turner Novak:
This was like â22 to â23, that one-year drop?
Chris Olsen:
I think it was over three years, but it was a relatively short period of time. So what that meant was, last year there were 3,500 venture firms that went back to market to try and fundraise. There were only 100 who had a close of any size, shape, or form of the 3,500. Which means there are 3,400 venture firms of the 3,500 that are going out of business.
Turner Novak:
Thatâs insane.
Chris Olsen:
This is being hidden by what have been a small number of companies that are continuing to raise large amounts of dollars, so the dollars committed to venture for companies raised has looked fairly steady. But a lot of that is LPs going direct into these late-stage rounds of Anthropic or SpaceX or whatever. So itâs quietly been hiding this purging of venture firms.
Turner Novak:
So you said 3,500 to 100. Thatâs like a 97%-
Chris Olsen:
Itâs a mass extinction level event. The venture firms that survive this are going to be the next generation of venture firms in America. But there arenât going to be 3,500 of them.
What weâre seeing on the backside of this, you wonât see it at the seed stage, because there are always lots of individuals writing those seed stage checks. Youâre going to see it in these Series B rounds. Of those 100 venture firms that had a close, the vast majority are $20 million or less. Theyâre not doing Series B rounds. There were only five firms that raised over $300 million funds last year, some really small number. So the number of potential investors in these Series B rounds is dramatically reduced.
What weâre seeing is actually not what you read about in the newspapers, where thereâs an unlimited amount of capital available to venture-backed companies. Itâs quite the opposite. Youâve got this handful of names who have access to unlimited money, and then thereâs everybody else, and everybody else is fighting to get access to follow-on rounds in a way thatâs been harder than itâs ever been. So the bar for success has gone up massively.
What weâre seeing on the backside of this is arguably one of the best times to invest in venture, because there are fewer buyers going around for these companies. The dynamic has shifted. I had an entrepreneur go out for a follow-on round, and he was like, âMan, itâs really different fundraising now than it was back in 2021.â I said, âWhat do you mean?â And he said, âDude, I canât even get people to do Zooms on video. They show up on Zooms, and theyâre off camera, and theyâre not giving me the time of day. In â21, I had people flying in my front door, showing up with the candy and the flowers, please invest in my company. I am dying to get attention on VCsâ calendars now.â The result of that is going to be a higher bar for whatâs investable. But what will come out of this will be stronger businesses that have great foundations and are going to scale into a next generation of companies backed by this replatforming in AI, where youâll see a phenomenal set of returns.
Turner Novak:
Because thereâs this general consensus that Anthropic and OpenAI are the last companies that matter, and you canât build more software because theyâre going to eat it all, so you need to get into them. Why am I wasting time on a Series B when I should just try to raise an SPV, because I canât raise a fund, and try to get a check into Anthropic and do whatever I can? So you just donât spend time on the other stuff.
Chris Olsen:
Yeah, I donât subscribe to that. Anthropic and OpenAI and what Googleâs doing and what X is doing, these are world-changing technologies. Theyâre not the end all. It doesnât mean every other business is no longer relevant. I donât believe that.
In fact, what weâre finding is that there are founders living in a niche problem that is maybe more niche than first appears, like the durable medical equipment example, where I need to get access to prescription drugs, and I need a wheelchair, and I need medical supplies, and I need to go through the insurance world. Thatâs a niche. Itâs massive. And the kinds of founders doing that, or doing it in a whole range of other things, look at what Path Robotics is doing. I donât think the answer is Figure or the Tesla humanoid. If you want to do welding or heavy manufacturing, this is a specialized thing. Weâre talking about manipulating hundred-ton objects. None of these humanoid robots are about to pick up a one-hundred-ton object. Theyâll get smushed.
Turner Novak:
Like Superman strength. Insane mechanical engineering.
Chris Olsen:
Yeah. Or weâre producing battleships, or submarines, or mining equipment.
Turner Novak:
You canât vibe code a miner or an excavator.
Chris Olsen:
Exactly. So the founders who are able to discover these niche opportunities and then use these technologies to build solutions that have never previously been possible, what youâre seeing that do is unlock potential that turns into their customers being more successful. That is onshoring manufacturing. That is creating increases in jobs.
In our companies doing this stuff, we look at the headcount. If you look at Path Robotics, every one of their customers, after they buy a Path robot, they hire more people. Headcount actually goes up after they put these robots in. Those are the kinds of opportunities that are more niche in nature, but are more likely to be the economy of the future, a whole hundreds or thousands of companies going after this stuff.
Turner Novak:
Iâm just looking at the Path Robotics website. It looks like itâs a robotic arm that essentially welds things together. Itâs probably put in a factory, some kind of line setup. Instead of having four people standing there bending over welding it, you have a bunch of robotic arms. Thereâs still probably the welders. Iâm assuming there are still people working with the machines, right?
Chris Olsen:
Itâs really an intelligence platform that enables heavy manufacturers to automate jobs that are frankly really dangerous and harmful to humans. Inhaling fumes around welding is not a good idea. Thereâs a reason you have to wear that mask to go welding, because itâs burning your eyes out. Itâs not a great idea to spend a good chunk of your time doing this stuff. But itâs necessary. Thereâs no other way to put two pieces of metal together.
What Path Robotics has been able to do is build the intelligence such that, whether itâs a very tight space where you need to put it on top of a quadrupedal robotic dog to go in and get that, they can do that. Or you need to put this on top of a six-axis heavy industrial arm to go and do a utility poleâs welding at 100 tons, they can do that. Theyâve been able to work through this welding catalog of things that enable one human to do the work of multiple welders.
This welding shortage is a common problem. These trade skills in America are in short supply, because you run into these crazy stories where shipbuilders sign contracts with the Department of Defense, and in that contract is a very clearly defined amount of wage that a worker can get on this project. Well, when they cut that contract, they didnât anticipate inflation was going to be where it is, and they didnât anticipate competition and all that stuff. So theyâre losing welding talent, who are leaving to go and deliver for DoorDash, because they can make more money doing DoorDash deliveries than welding a submarine. Itâs a problem. And again, itâs a niche, but if it can be solved with a technology and a product like Path Robotics, this is the kind of potential that unlocks massive companies, $50 to $100 billion type opportunities.
Turner Novak:
And the jobs that are fun, people want to do. You could argue there are some kids who think about this like, âOh, itâs like playing a video game. Iâm controlling this robot. Thatâs fun for me to do, and itâs safer.â And you think of how humanityâs evolved. We used to send children into coal mines to mine. Itâs insane that we used to do that. We might look back on this too, like we used to actually have people standing in front of the fumes that come up and breathing that in.
Chris Olsen:
Totally. Or those jobs would go overseas, and we would manufacture finished poles overseas and ship them back to America. Now we no longer need to do that, because we can manufacture them here.
Turner Novak:
You have a concept of competing with yesterdayâs version of yourself. Is that still a pretty big ethos at Drive?
Chris Olsen:
It is, absolutely. Itâs this idea that itâs so easy to look around and see other people in the image that they let you observe. Most people are not showing the most vulnerable, imperfect versions of themselves. Theyâre giving you the highly polished marketing version. And itâs so easy to look at those things and feel like, âMan, I could never do that.â Itâs intimidating. Itâs almost by design. Itâs saying, âPlease donât come compete with me. Iâve got too many years on you.â
Instead, what we really believe in here is that you know where you were yesterday, and you know what youâre trying to accomplish today. Whether itâs Iâm trying to land an LP, or make a new investment, or make an investment successful, you know how you did that yesterday, and you know it wasnât perfect, and you probably know the way to do it a little bit better. So our mentality has always been, letâs not compete with the perfect image of what other people show us. Letâs compete with our well-understood, imperfect version of ourselves.
Do you want to compete with yourself? Iâd be happy to compete with me, because I know me, and I know what I can and canât do. I know what my weaknesses are, and if I compete with myself, I just need to show up one percent better today than I showed up yesterday. If I do that every day, then it starts to look like an exponential curve. Suddenly you do that for a year and you look back, and the amount of progress youâve been able to make is invigorating. Itâs the most exciting way to think about your own progress. That mentality has steered us very well through the dark times as well as the good.
Turner Novak:
I like competing against yourself, because you know your own weaknesses, so you can always get better. You can attack your own weaknesses. For me, I have an avoidant personality. Itâs embedded. So every day Iâm like, âDonât avoid things. Attack what youâre avoiding.â Having that mindset of competing against the thing Iâm the worst at, that framing has actually helped me be a lot better at it. Do you have a favorite founder or CEO or business that youâve gotten the most inspiration from, whether recent or historical? Some people, like, I learn a lot from John D. Rockefeller, vertical integration. Is there anything youâve learned or taken inspiration from?
Chris Olsen:
The things Iâve gotten the most inspiration from are the tiniest examples of things that really define a new continuum, and itâs usually not from the people you would expect. The super successful founders, have I learned from them? Yes, absolutely. But as an example, thereâs a guy I go to the gym with. He comes into the gym and parks in the exact same spot at the exact same time every single day, and heâs been doing it for like twenty-five years.
One day he decided he wasnât getting the results that he wanted. So in an unobvious way, he came in and parked his car in a new spot. And what ended up happening was he walked into the gym differently, and he showed up differently, and it started a new pattern in his life. Then he did that again and again, and he got a little bit better, a little bit better, and suddenly you could see he was getting stronger. He was doing more than he ever did before. Then other people start parking in new spots, and other people start doing things a little differently.
Itâs those tiny examples. If you really want to change, everyone goes, âI want to get stronger.â Sure. But how? Well, you do one more rep. Thatâs not really the answer. To get stronger, you have to change your behavior on the way in to expect a different outcome. Those little things, whether itâs parking in a new spot, or setting up at a new desk, or changing into a new job, or making a new investment strategy, itâs the realization that whether itâs results in the gym or results in your portfolio, there are these patterns we all fall into, and finding a way to change them. Those are more the lessons I spend time ruminating on, and where my inspiration comes from.
Turner Novak:
Do you have any others than that one, or is that the most, the changing where you park?
Chris Olsen:
Well, thatâs this one. There are other examples too. Some of the stuff I think a lot about is looking at whatâs a repeatable way to make money and using that with portfolio companies. The classic example is, you see portfolio company X iterating, iterating, iterating. Canât find it, canât find it, canât find it. Then suddenly they find it, and theyâve got product market fit. And whatâs the very first thing that happens? They stay in this pattern of iteration, and suddenly they start going after the whale customer. Now a $10k order isnât sufficient. Now they need a $10 million order. And youâre like, âOkay, hang on a second. Youâve been iterating through all these different phases to find the $10k order. Can we build a $10k order machine first? Letâs go and do that.â And if we can do that, then weâll find a way to iterate, have another team continue to iterate from the $10k order into a $20k order. My grandfather used to define it as, when youâre hunting deer, donât shoot at the rabbits. Donât shoot at these distractions that come along all the time, because otherwise youâll just end up pivoting your way into a circle and never making any progress.
Turner Novak:
So itâs knowing when to change what youâre doing, but also knowing when to focus on the things that are working.
Chris Olsen:
Yeah. Iâm a big subscriber to the belief that just because it hasnât happened yet doesnât mean it isnât working. There are certain things in life where you need to be patient. It is working, but itâs not going to show up in an overnight success. Give yourself the patience to be able to pursue that.
Turner Novak:
How do you know if itâs working? What are the early signs with a portfolio company like that? How do you suss out the external validation? Maybe it has or hasnât shown up in the data.
Chris Olsen:
If youâre asking that question, then it hasnât happened. When it happens, itâs obvious. Itâs undeniable. It shows up in every metric in the business, literally every single one. Itâs like the difference between looking for a needle in a haystack of, is it working, versus, no, no, itâs a needle stack. Thereâs no hay in this thing. Every single thing is working. So unless youâve got that, if somebodyâs asking the question, âIs this product market fit?â thatâs not it. When it happens, itâs so obvious, itâs undeniable.
Turner Novak:
So itâs really just finding the obvious things. Keep hunting. Once you find the obvious things, you just know. So look for the obvious stuff.
Chris Olsen:
Yeah, and pay attention to it. Recognize it when it comes along. You need to recognize it.
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