Ex-Sequoia partners raise $250 mln for Silicon Valley-style startups in Midwest

SAN FRANCISCO Tue Feb 4, 2014 10:30am EST

SAN FRANCISCO Feb 4 (Reuters) - Regions around the world have long sought to replicate California's success in launching startups. Now, two venture capitalists have raised $250 million in a gambit to recreate some Silicon Valley-style growth in the U.S. Midwest.

Mark Kvamme and Chris Olsen, formerly partners at venture-capital firm Sequoia Capital, announced Tuesday that they had raised the funds to nurture companies in states often overlooked by traditional venture cash. Their new fund, Columbus, Ohio-based Drive Capital Fund I, will focus on technology, healthcare and consumer businesses, they said.

"If they did have a funding source that was equivalent to Silicon Valley, they would be massively successful," said Olsen about Midwestern companies in a phone interview.

By funding source, he said he referred not simply to the cash but to the complete approach many Bay Area venture firms use, including intensive efforts to help portfolio companies hire talent and find potential customers.

"The difference is here, you can name the firms on one hand," Olsen said, whereas in California the list extends to dozens. Existing venture-capital firms in the Midwest include Arch Venture Partners and Pritzer Group Venture Capital, both based in Chicago, and Minneapolis-based Split Rock Partners.

Traditionally, venture capital has flooded to the San Francisco Bay Area, with other regions left far behind. Last year, the Midwest attracted just $1.1 billion in venture capital investments, according to the National Venture Capital Association, or just under 4 percent of $29.36 billion total.

The Midwest trailed Silicon Valley; New England; the greater New York, Los Angeles, and Washington, D.C. metropolitan areas; and Texas. It came in just ahead of the Northwest, NVCA data show.

Perhaps the Midwest's most notable venture-backed company in recent years has been Groupon, the daily-deals site based in Chicago.

Kvamme and Olsen hope that with Drive's cash available they can keep more promising entrepreneurs in the Midwest rather than decamping to California in search of capital and advice.

"Just like Fred Wilson went to New York City and started Union Square, we see that same opportunity here in the Midwest," said Olsen, an Ohio native. Union Square Ventures has backed several big New York start-ups, including crafts-site Etsy, considered an initial public offering candidate for 2014, and blog site Tumblr, acquired last year by Yahoo for $1.1 billion.

Drive has already invested in a handful of Midwest businesses, including retail-data service ChannelIQ; health-information exchange CrossChx; farming software company FarmLogs; and travel application Roadtrippers.

Its inaugural fund of $250 million is large for a firm's first fund. The average venture capital fund totals around $150 million, according to the NVCA.

Kvamme previously led the nonprofit JobsOhio.

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (1)
IVCAillinois wrote:
Congratulations to Drive Capital! I am thrilled that they Drive will focus on the Midwest – we have many great companies ready to grow.

As Executive Director of the IVCA, I must correct the statement that there are only a handful of firms in the Midwest. Since January, 2013 over 181 companies were funded by 124 separate Midwest investors. IVCA members include ARCH & Pritzker Group AND 23 other VCs including the most active in the Midwest.

Drive Capital and other VCs are welcome to focus on the Midwest. There are lots of great companies – and syndicate partners – here!

Feb 05, 2014 5:07pm EST  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.