Peakview, a US LP once backed by a Chinese company, is diversifying its own investor base

Following Sequoia Capital’s big reveal earlier this week that its China and India-based subsidiaries are turning into independent entities, we reached out to someone yesterday who we think might have an opinion on the development. Erik Lassila is a former VC whose Silicon Valley-based fund-of-funds business, Peakview Capital, was – when we last spoke with him in 2016 – fully backed by a Chinese investment firm that wanted to park some of own money with venture capital managers in the United States

Lassila dropped the analysis of Sequoia’s decision, but he let us know that in April, eight-year-old Peakview closed its fourth fund with $150 million in capital commitments — with no commitments from China. mainland – although he insisted that Washington’s increasingly strained relationship with the Chinese government is not the reason.

Although we don’t entirely believe it, we enjoyed catching up with Lassila, who now runs Peakview with two partners; whose company sent checks to Menlo Ventures, Institutional Venture Partners and Foundation Capital (as he told us years ago); and whose new holdings, according to a reliable source, include funds managed by Andreessen Horowitz and Lightspeed Capital Partners. (Lassila, who says Peakview now has $600 million in assets under management, declined to discuss any of his portfolio managers on our call this week.)

More from this chat below:

TC: When we last spoke, you were fully funded by a Chinese company that wanted you to invest on its behalf in US venture capital funds.

EL: Our investment strategy has been the same since I founded the company in 2015. We are primarily a fund of funds investing in a very small number of what we believe to be the top performing VCs in the country. We also make direct venture capital investments in fintech and other enterprise technologies at the Series B, C and D stage, although we do very few of these deals.

Which venture capital firms meet your criteria? Is there a threshold in terms of fund size?

We invest in more mature venture capital firms that typically have a strong market presence and a strong experienced team and hopefully generational institutional knowledge. We try to provide our investors with very high risk-adjusted returns, which means lower risk and volatility, but a very high return, and we do this by focusing on a very small number of what we consider to be leading VCs.

Which ones?

Some of these companies are more sensitive than others to the use of their name and having their name mentioned, so we do not disclose them.

How many fund managers does your portfolio have?

About 10 in our previous fund. This will also be the case for the fund that we have just closed. Our strategy is quite focused.

Many of the more “mature” funds in the industry have ballooned in size over the past few years. They also got back to their sponsors faster than ever. Did you push to keep going back up?

We are very different from other people who do what we do in that we are trained venture capitalists; we know the VCs as colleagues and friends, so I think we’re lucky to have a bit more flexibility. So during boom times, honestly, we made a conscious effort to invest less during those times because I’ve seen this movie before – twice. And when funds invest so much capital so quickly, from a CFO’s perspective, that’s a recipe for weak vintages, so we’ve shed some light on the 2020, 2021 era funds.

So this wasn’t a case of “Make a check or you’re out of the club”?

It’s almost a kind of dance, but overall, no, we didn’t. These groups know that we are long-term funders and they have had no trouble raising capital; a lot of money was thrown at them. So we were able to relax a bit.

Let’s get back to who is funding you. I was told that Shengjing Group is no longer your only LP.

At the start, we only had one investor, so our very first funds were invested specifically with Chinese capital. Beginning in 2018, with our third fund, we made a conscious effort to diversify our LP base. And that’s partly a factor of, you don’t want to just rely on one investor, but also we wanted to have more of a global LP base. So if you look at both our fund three and the fourth fund we just raised, the majority of the capital is coming from US investors with a small portion coming from Hong Kong investors and a bit from backers in Europe .

And the Middle East? What about Saudi Arabia?

No, we don’t fundraise there.

You wanted to diversify, but you also had to worry about growing geopolitical tensions between the United States and China.

Politics comes and goes, so we didn’t make this decision based on the geopolitical environment. We wanted to diversify our customer base. We believe that in our time, having the biggest economies in the world, like the United States and China and others, cooperating and collaborating can and should be a positive thing. I’m very concerned about the regulatory landscape around AI, for example. It’s technology that you don’t want to get into the hands of bad actors. And I believe this is the most critical time since maybe since World War II or the Cold War for global tech leaders to collaborate on regulatory solutions and standards, which is really going to take a multilateral effort. , including a dialogue between the United States and China .

Can you remind me how it happened that you were fully supported by the Shengjing Group?

It is one of the largest Chinese funds of funds focusing solely on venture capital. I had gotten to know the direction; I knew they were trying to invest in the United States and they weren’t able to invest in what I would call the “leadership level” of companies. During this time I wanted to launch Peakview right away and have a source of capital and it was a good partnership and these funds worked very well.

You sometimes make direct investments in companies. Do you or would you also invest in a pocket of venture capital investments in the secondary market, ie with another institution that is looking for liquidity?

Groups like foundations and endowments and the like rarely sell their positions. Once in a while, you’ll have a group that says, “Okay, we want to reduce our exposure to our venture capital. For this to happen. But in high-quality funds, you don’t see much activity. We are receive so many emails every week like “Hey, are you buying something?” Do you sell anything? There is an active market and it will be even more so soon because people will want cash on their private holdings.

If you decided at some point to sell some of your venture capital holdings, would you need buy-in from all of your fund managers?

No. We have the capability, but that’s not what we’re doing. We’re in this type of business for the long haul, and on top of that, if you’re selling an LP stake, you’ll almost always have to take a discount to market value. We therefore believe that the best long-term results come from maintaining these positions.

Would you like some of the VCs who raised their biggest funds to consider giving back capital, given that the market has changed so much?

The kind of companies we invest in, people have taken a very cautious approach to making new investments. And so, of course, new investment cycles are stretching. And the limited partnership agreements for these funds are always written to give VCs some flexibility to invest more slowly, when market conditions make it a smarter approach. So I think these existing funds will just take a lot longer to invest than people might have suspected when they were created, and we agree with that. I don’t think in the companies we invest in there won’t be a lot of pressure to reduce the size of the funds.

Could you be less diplomatic?

[Laughs.] But it’s really true. They just invest more slowly.