Venture Capital Firm Focused on the Midwest Raises a $250 Million Fund

Mark D. Kvamme, a former partner at the venture capital firm Sequoia Capital, considers himself “a Silicon Valley guy through and through,” having grown up in the region and spent his professional life there.

But these days, he is looking for investments many miles away from California’s Bay Area, in the Midwest.

Mr. Kvamme and another former Sequoia partner, Chris Olsen, have finished raising an inaugural $250 million fund for Drive Capital, their new venture capital firm focused on companies in the Midwest region, according to an announcement on Tuesday. The firm, which Mr. Kvamme and Mr. Olsen founded in 2012, has already backed a handful of companies in fields related to technology, consumers and health care.

If there is one thing that unites their investments, it is location. So far, their portfolio companies include: a start-up in Chicago that collects online retail data; another in Columbus, Ohio, that is creating a health information exchange; one in Ann Arbor, Mich., that makes farm management software; and one in Cincinnati that helps travelers plan road trips.

“We truly believe the best place in America to build your company is in the Midwest,” Mr. Kvamme said.

There are several reasons behind this proclamation. One is the cost of living, which is substantially lower than in Silicon Valley. Another is the “domain knowledge in major industries outside of technology” that exists in the Midwest, said Mr. Olsen, a native of Cincinnati.

A third factor - the rise of cloud computing that allows data to be stored remotely - means that start-ups no longer need to be physically located near skilled technologists, Mr. Kvamme said. More important, he said, is being close to customers.

Their venture capital firm, based in Columbus, is still small, with seven employees. And it is not the first such firm to wake up to the potential of start-ups in the region. A company based in Milwaukee, Capital Midwest Fund, counts the hedge fund manager David Einhorn as a major investor.

Mr. Kvamme made his way to the Midwest in 2011, when Gov. John R. Kasich of Ohio tapped him for a cabinet role. But he did not stay long in the job, becoming the center of a controversy when an advocacy group filed a lawsuit challenging the appointment on the grounds that Mr. Kvamme was a California resident.

Mr. Kasich made him president of JobsOhio, a nonstate entity created by the governor that sought to keep companies and jobs in the state. In the fall of 2012, however, he left to start Drive Capital with Mr. Olsen.

“I started to see all this opportunity in the Midwest and in Ohio and got really excited about the companies,” Mr. Kvamme said. “What was clear to me was they were really lacking Silicon Valley-style venture capital.”

Already, cities in the region look “totally different” than they did when Mr. Olsen was growing up, he said, with the presence of technology incubators and investors.

“All these industries that have historically grown up in the Midwest are being infiltrated with technology,” he said.