In the aftermath of Sequoia Capital’s big reveal earlier this week that its China- and India-based affiliates are spinning off into independent entities, we reached out yesterday to someone who we thought 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 — backed entirely by a Chinese investment firm that wanted to park some of its own money with venture managers in the U.S.

Lassila took a pass on analyzing 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 none from mainland China — even while he insisted that Washington’s increasingly strained relationship with the Chinese government isn’t the reason why.

Although we don’t entirely believe him, we enjoyed reconnecting with Lassila, whose firm now has $600 million in assets under management and whose newest bets, per a reliable source, include stakes in funds run by Andreessen Horowitz and Lightspeed Capital Partners. Lassila declined to disclose any information about his portfolio managers during our conversation this week, but it’s worth noting that years ago, he told us that Peakview has also wired checks to Menlo Ventures, Institutional Venture Partners and Foundation Capital.

More from that chat below:

TC: The last time we talked, you were funded entirely by a Chinese company that wanted you to invest in U.S. venture funds on its behalf.

EL: Our investment strategy has been the same since I founded the firm in 2015. We’re primarily a fund of funds that invests in a very small number of what we think are the top-performing VCs in the country. We also do some direct VC investing in fintech and other enterprise tech at the Series B, C and D stage, though we do very few of these deals.

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

We invest in more mature VCs typically who 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, meaning lower risk and lower volatility but a very strong return, and we do that by focusing on a very small number of what we see as top-tier VCs.

Including which ones?

Some of these firms are more sensitive than others about using their name and having their name come up so we don’t disclose these.

How many fund managers are in your portfolio?

About 10 in our previous fund. That will be true, too, of the fund we just closed. Our strategy is pretty concentrated.

A lot of the most “mature” funds in the industry ballooned in size over the last few years. They also came back to their limited partners faster than ever. Did you feel pressured to keep re-upping?

We’re very different from other people who do what we do in that we’re venture capitalists by background; we know the VCs as colleagues and friends and so I think we’re lucky to have a bit more flexibility. So during the boom times, honestly, we made a conscious effort to invest less during that time because I’ve seen this movie before — twice. And when funds are investing so much capital so quickly, from a finance manager viewpoint, that is a recipe for weak vintages, so we went light on the 2020-, 2021-era funds.

So it wasn’t a case of, ‘Write a check or you’re out of the club’?

It’s almost kind of a dance, but by and large, no, we didn’t. These groups know that we’re long-term backers and they didn’t have a hard time raising capital; there was a lot of money getting thrown at them. So we were able to ease up a little bit.

Let’s circle back to who is funding you. I was told Shengjing Group is no longer your sole LP.

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

What about the Middle East? What about Saudi Arabia?

No, we don’t fundraise there.

You wanted to diversify, but you must have been worried, too, about growing geopolitical tensions between the U.S and China.

Politics ebbs and flows, so we didn’t make that decision based on the geopolitical environment. We wanted to diversify our customer base. We do think that in this day and age, having the world’s largest economies, like the U.S. 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. This is technology that you don’t want to fall into the hands of bad actors. And I believe that this is the most critical time since maybe since World War II or the Cold War for the world’s technology leaders to collaborate on regulatory solutions and standards, which is really going to take a multilateral effort, including dialogue between the U.S. and China.

Can you remind me of how it came to pass that you were once backed entirely by Shengjing Group?

It’s one of the largest Chinese fund of funds focusing only on VC. I had gotten to know the management; I knew that they were trying to invest in the U.S. and they weren’t able to invest in what I’d call the “leadership tier” of firms. Meanwhile, I wanted to get Peakview started right away and have a source of capital, and it was a good partnership and those funds have done very well.

You sometimes make direct investments into companies. Do you, or would you, also invest in a sleeve of venture capital stakes on the secondary market, meaning from another institution that is looking for some liquidity? 

Groups like foundations and endowments and others rarely sell their positions. Once in a while, you’ll have a group that says, “Okay, we want to reduce our our venture exposure.” So that can happen. But in the high-quality funds, you don’t see much activity. We are getting so many emails every week like, “Hey, are you buying anything? Are you selling anything?” There’s an active market out there and it’s going to be even more active soon because people will want liquidity on their private holdings.

If you did decide at some point to sell some chunk of your venture holdings, would you have to receive buy-in from all of your fund managers?

No. We do have the ability, but it’s not what we do. We’re in this long-term-hold kind of business, plus really, if you’re selling an LP stake, you almost always would have to take a discount to the market value. So we think the best long-term results come from holding on to those positions.

Do you wish that some of the VCs who raised their largest funds ever would consider giving back some capital given the market has changed so dramatically?

The kind of firms that we invest in, people have been taking a very prudent approach to making new investments. And so certainly, the new investment cycles are stretching out. And the limited partnership agreements for these funds are always written to provide the VCs some flexibility to invest more slowly when market conditions make that a smarter approach. So I think these existing funds will just take much longer to invest than people might have suspected when they were formed, and we’re okay with that. I don’t think that in the firms that we invest in, there’s not going to be a lot of pressure to reduce fund sizes.

Could you perhaps be less diplomatic?

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