Mark Kvamme.JPG

Gov. John Kasich, left, brought Silicon Valley venture capitalist Mark Kvamme, right, to head up the launch of JobsOhio, the state's privatized economic development agency. Kvamme left JobsOhio last year to start Drive Capital, a new fund that has attracted an early-stage investment from Ohio State University.

(The Associated Press via the Columbus Dispatch)

COLUMBUS, Ohio -- Ohio State University has invested tens of millions of dollars in a new, untested fund co-founded by a venture capitalist who enjoys close relationships with recently retired university president E. Gordon Gee and Gov. John Kasich.

The deal was done behind closed doors, right around the time trustees changed OSU policy to allow top administrators more leeway over how to invest operating funds.

OSU's commitment to Drive Capital, launched this year by Silicon Valley veterans Mark Kvamme and Chris Olsen, is worth about $50 million, sources familiar with the arrangement told Northeast Ohio Media Group. It is unknown who recommended the investment or whether the university sought competing proposals. OSU officials have not provided details or documents that the news organization first requested three weeks ago.

Kvamme, in an email, acknowledged that an agreement exists between Drive Capital and OSU -- one that requires university officials to notify him and Olsen whenever their fund is subject to a records request. But Kvamme and Olsen declined to discuss their business dealings on the record, citing Securities and Exchange Commission rules.

"We believe in the opportunity in Ohio and the Midwest to create world-changing technology companies," Kvamme, a native of California, wrote in the email. "It is important that people here understand our goals and objectives for the region."

Retired Ohio State University President E. Gordon Gee

It is unknown whether OSU trustees reviewed or signed off on the deal. One member of the Finance Committee, which has oversight of the university's investments, claimed not to know of the deal. Other trustees did not respond to requests for comment.

A former trustee, Jo Ann Davidson, remains involved as an external Finance Committee member and said she was aware of the deal. The former Ohio House speaker is familiar with Kvamme and said state universities carefully target venture capital as an investment.

"We got a problem in Ohio with venture capital," Davidson told Northeast Ohio Media Group. "So I did understand from someone that there had been an initial investment made. And I'm aware of what Kvamme is doing in putting together the fund."

On Monday, an OSU spokeswoman declined to answer specific questions sent by email at her request. OSU was asked about the investment's amount, where those dollars came from, who recommended the investment and whether competing proposals were sought.

Gayle Saunders, assistant vice president for media and public relations, only confirmed that the "current leadership team made a commitment to Drive Capital in early July" -- or not long after Gee's July 1 retirement. Joseph Alutto, the provost under Gee, has been serving as the interim president. Gee remains at OSU in an emeritus position.

Interim Ohio State University President Joseph Alutto

"In keeping with common best practices for investment strategies, we do not typically comment on the university's specific investments," Saunders wrote in the email.

Saunders added that the decision followed a "rigorous review ... by industry experts" and was "based on an identified need for increased venture capital to spur economic development in Ohio and an assessment of the investment opportunity itself."

Gee, who serves on the board of JobsOhio, the privatized state development agency once headed by Kvamme, said Tuesday that the proposal came to OSU while he was president but was not finalized until after he retired.

In a teleconference to discuss a higher-education project Kasich has asked him to tackle, Gee praised the deal.

"I'm very glad that the priority on investing in education, certainly research and job-creation that I championed as president [has continued] with my successors," Gee said. "And their support for innovation as evident by this decision to invest in Drive Capital enhances these opportunities. And by the way, I was an enthusiastic supporter of doing this. I want to be on the record in that regard."

He added: "As you know if you've followed Ohio State very closely, I consistently sought nontraditional strategies," including privatizing parking operations, to grow revenue.

John Kasich and 'The Great Kvamme'

Kvamme and Olsen are former partners at Sequoia Capital, the venerable investment firm that has backed Apple, Google and Instagram, among others. Kvamme lists the social network LinkedIn and the comedy website FunnyOrDie.com as accomplishments there.

Kasich recruited Kvamme -- pronounced KWAH-mee -- from California in 2011 to lead economic development efforts under the new JobsOhio agency. The Republican governor was known to introduce his close friend as "The Great Kvamme."

After a tenure that brought questions about his residency and JobsOhio's propriety, Kvamme resigned last year, saying he wanted to pursue private-sector opportunities. He and Olsen started Drive Capital to invest specifically in Midwest startups. The idea, explained by Kvamme in an August interview with The Plain Dealer, is to prevent Ohio entrepreneurs from having to move to California to access early-stage funding.

A Kasich spokesman said the governor did not lobby OSU on Kvamme's behalf.

Drive Capital is managing a pooled investment fund that combines money from other investors. As of August, Drive Capital had raised $181 million â the best third-quarter haul in the nation for a new fund, according to the National Venture Capital Association.

Investors in Drive Capital must put up a minimum of $1 million, according to a regulatory filing with the SEC. Kvamme and Olsen reported attracting 14 investors but did not name them or specify how much each had committed. At a $50 million level, OSU's share would account for more than a quarter of what's been raised.

Drive Capital reported July 24 as the date it sold its first stake.

Kvamme and Olsen hope to raise $300 million through their initial offering. And already Drive Capital has invested in two startups. CrossChx, based in Columbus, uses fingerprint technology to enhance patient identification for the health care industry. Roadtrippers, of Cincinnati, is a web-based service for planning vacations.

OSU quietly changes policy

Universities, especially large ones of Ohio State's status, routinely leverage their endowments and operating funds to earn more cash. And venture capital -- risky by nature, but potentially lucrative -- has become a common investment tool.

OSU divides its investments between two portfolios -- a long-term investment pool and the university's operating funds. The long-term pool totaled $3.1 billion, the operating funds $2.9 billion at the end of the last fiscal year, June 30, according to an August report from the university's treasurer and chief investment officer to the Finance Committee.

Long-term investment funds include university and foundation endowments and allocations from operating funds. Venture capital accounted for $22 million of this pool last fiscal year. Among other sources, the operating funds are composed of OSU's short-term operating fund, gift annuity and trust funds and student loan funds.

In August, trustees agreed to bring the two portfolios under a single investment policy.

William Jurgensen, chairman of the Finance Committee, told colleagues that Geoff Chatas, OSU's senior vice president for business and finance, recommended the update, meeting minutes show. Jurgensen told trustees there were no "real significant changes in it that I need to call out to you." He did not, according to minutes, mention the new provision that allows Alutto, Chatas and Provost Joseph Steinmetz -- or whoever holds those three posts -- to invest up to $100 million in operating funds at their discretion.

The language requires the administrators to consult with the Finance Committee chairman, but it also exempts these funds from existing allocation rules and benchmarks. Say an administrator wants to invest operating funds in venture capital. The investment would not count against the portfolio's 10 percent to 25 percent range for private capital.

In pitching the Finance Committee, administrators said the money would be spent "in the best interests of the University," records show. An OSU spokesman told Columbus Business First, which reported on the plan before it was approved, that the separate pool would be tapped for "economic development and community outreach opportunities."

The spokesman specified that projects could include collaborations with Central Ohio economic development agencies, other Ohio universities and state government.

Political connections permeate OSU deal

Because OSU officials were not forthcoming with specifics, it is unclear if the policy was changed to enable the Drive Capital investment, which by the university's timeline was pledged weeks earlier -- in early July. Public universities that invest in venture capital traditionally have been reluctant to fully disclose the nature of such relationships.

A 2004 report from the Wall Street Journal noted that venture capitalists had been lobbying states to change open-records laws to keep such information from the public. This year, following a lawsuit from Reuters, a judge ordered the University of California to disclose details of its deals with two fund managers, including Sequoia Capital.

Ohio law grants no explicit exemptions to a public university's investment activities. And OSU's arrangement with Drive Capital prompts questions because of political ties.

Gee retired in the wake of controversial comments about Catholics and the University of Notre Dame. But he remains closely associated with OSU in an emeritus role and as a law professor. His popularity through two tenures as president has made him an influential and well-connected leader in the state capital's corridors of power.

Kasich and Kvamme have become close with Gee, who accompanied them to meetings in Detroit with the Big 3 domestic automakers early in the governor's term. When Kvamme's qualifications came under fire, Kasich held up Gee as one of the venture capitalist's biggest fans. When Kvamme was seriously injured several months later in a motorbike crash, Kasich and Gee visited him at the OSU Medical Center.

Kasich later appointed Gee to JobsOhio's inaugural board of directors. And when a newspaper scrutinized Gee's expenses last year, Kvamme rode publicly to his defense.

"The way I look at it," the JobsOhio chief told a Dayton Daily News reporter at the time, "every second of Gordon's time is very, very valuable for the state of Ohio."

The close relationship between Kasich and Gee was on display as recently as Monday, when the governor appointed his friend to lead a review of Ohio's higher education system and the value it provides. They made the announcement together in Columbus.

Kasich spokesman Rob Nichols said the governor was unaware of OSU's investment in Drive Capital until asked about it Monday by the Northeast Ohio Media Group.

Gee also serves on the board of directors at Columbus-based Limited Brands, the national clothing and accessories retailer. Limited's founder, chief executive and chairman of the board is Leslie H. Wexner, a major Republican donor who has given to Kasich.

This is Gee's second stint as a Limited director. He left the board in 2008, shortly after returning to OSU, to avoid conflicts of interest, as Wexner was a university trustee at the time. Gee rejoined the board last year, after Wexner stepped down as trustee.

Wexner, like Gee,

. Several buildings on campus bear his name, including

where Kvamme was treated. And one of Wexner's closest friends and business associates, Jack Kessler, is Chatas' father-in-law.