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Yuri Milner's DST has quietly acquired 10% of Facebook

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A Russian Star Rises in Silicon Valley
Yuri Milner's DST has quietly acquired 10% of Facebook

By Olga Kharif

http://www.businessweek.com/magazine/content/10_19/b4177036186682.htm

Zynga CEO Pincus calls the financier "a trusted adviser"

Yuri Milner keeps a telescope in his office on the 57th floor of Moscow's Nabarezhnaya Tower to check out what's happening across the city. Judging by his investment portfolio, you'd think it was trained on Silicon Valley instead. In recent years the 48-year-old Russian's company, Digital Sky Technologies, has amassed a $1 billion-plus portfolio that includes stakes in Facebook and game developer Zynga. With another $1 billion ready to invest, there's almost certainly more to come.

Milner's aim is to buy into top Internet ventures worldwide—with an eye toward an eventual public offering of his company's shares. Goldman Sachs (GS), fund manager Tiger Global, and Russian oligarch Alisher Usmanov have all invested in five-year-old DST. On Apr. 12, Chinese Internet services provider Tencent bought about 10% of the company for $300 million.

Since paying $200 million for 2% of Facebook last May, Milner has increased that stake to nearly 10%—worth perhaps $2 billion—by purchasing shares from early employees, according to two people familiar with the social network's ownership. On Apr. 19, DST took the majority of a $135 million financing round for Groupon, a Chicago-based site offering coupons for restaurants and museums. In December, DST was the biggest investor in a group that plowed $180 million into Zynga. Milner "is a trusted adviser," says Zynga CEO Mark Pincus, who says the Russian visits every month "to give input, but it's a soft touch."

On Apr. 28, DST paid $188 million for AOL's instant-messenger service ICQ, the leader in that business in Russia and elsewhere in Eastern Europe. And with high-profile investor Jim Breyer of venture capital firm Accel Partners, Milner is discussing the possibility of an investment in Russian video-chat service Chatroulette. "Yuri has an understanding of how social applications will evolve globally," says Breyer, who introduced Milner to managers at Groupon. "I'd like to see us work together even more deeply."

Milner's bare-bones staff of 20 includes seven analysts, all veterans of Goldman Sachs, Morgan Stanley (MS), or Citibank (C). They follow his lead in dress: suits, no ties. As for decor, the office has little more than PC screens and digital photo frames "to avoid distractions," Milner says. The analysts keep tabs on some 50 Internet properties on Milner's list of potential investments. "I follow a company for one, two, three years" before buying, he says.

Prior to pouring big money into major names like Facebook, Milner typically buys into smaller Eastern European companies using similar strategies to better understand their business models. Before Facebook, he invested in five other social networking sites including Vkontakte.ru, Russia's largest social network. Milner and the DST team "are walking encyclopedias of Internet business models," says venture capitalist and Facebook board member Marc Andreessen.

Milner spends as much as 75% of his time traveling to meet owners of startups and is often in the U.S. When he's back in Moscow, the 11-hour time difference with Silicon Valley frequently keeps him up late into the night. "I don't know when he sleeps," says his sister, Marina Istomina, a former director of a cultural investment fund at the World Bank. "Maybe he sleeps in the background, like a computer, while still plugged in."

Milner got his start as a theoretical physicist in Moscow before deciding he couldn't live on the equivalent of $5 a month. He worked as a taxi driver, then launched a business selling IBM PCs out of the back of his father's Zhiguli sedan. In 1990 he won a scholarship to the University of Pennsylvania's Wharton School. Soon after getting his MBA in 1992, he returned home and eventually led Russia's first hostile takeover, of Moscow confectioner Red October. Later he took over troubled portal Mail.ru and turned it into the leading Russian-language Web site.

Milner says he invests for the "very long term," comparing his style with that of Warren Buffett. Given that time frame, he hasn't yet seen any of his big holdings go public, so it's hard to say just how successful he is. But thanks to cash flow from sites like Mail.ru and Vkontakte.ru, says Milner, Digital Sky is "overall very profitable."

The bottom line: Milner has become a major backer of Web 2.0 startups and has another $1 billion to spend on new investments.

Kharif is a reporter for Bloomberg Businessweek in Portland, Ore.

Quote
CBC.ca DST Continues Expansion With ICQ Purchase‎ - 3 days ago
http://www.themoscowtimes.com/business/article/dst-continues-expansion-with-icq-purchase/405076.html
The purchase of ICQ is a strategic step in the development of DST's business in Russia and Eastern Europe, Yury Milner, DST's founder, said in a statement. ...
The Moscow Times - 411 related articles »

DST Overview
DST is a leading global Internet holding company that originated in the Russian speaking world. We estimate that our companies comprise well over 70% of all ...
www.dst-global.com/ - Cached

Digital Sky Technologies values Facebook stock at $6.5 billion ...
14 Jul 2009 ... Russia's Digital Sky Technologies want to invest another $100 million in Facebook common stock and have said they are willing to pay $14.77 ...
www.geekwithlaptop.com/digital-sky-technologies-values-facebook-stock-at-6-5-billion - \\

Tencent to invest $300 million into Russian Digital Sky Technologies

RT - 14 Apr 2010
At this stage the Chinese might want to bring their technology and ... million in 2009 and has a capitalization of $38 billion on the Hong Kong stock exchange.
China's Tencent to buy into Russian Internet firm‎ - AFP
Tencent to Invest $300 Million in Facebook Backer‎ - New York Times (blog)
China invests $300 mln in Russian Facebook investor‎ - Reuters
Business Day - Trading Markets (press release)
all 98 news articles »

http://en.wikipedia.org/wiki/Digital_Sky_Technologies

Digital Sky Technologies is an investment firm based in Moscow, Russia. The company is a major investor in the Russian, CIS and Eastern European internet markets. It owns stakes in various internet companies that together account for over 70 percent of all hits on the Russian-speaking Internet. Its investments include the large social networks Vkontakte, Russian web portal Mail.ru and social networking company Forticom.[1] Some of its income is from pay-per-click and selling virtual goods to users. [2]

According to Russian business daily Vedomosti, billionaire Alisher Usmanov owns around 32% of Digital Sky Technologies. Other investors in DST include Tencent (c. 10%), Goldman Sachs, Tiger Global and Renaissance Capital.[3]

In May 2009 Digital Sky Technologies bought a 1.96% stake in the Facebook social media website for USD$200 million, valuing the site at $10 billion. [4]

Its asset, the Forticom Group, owns a 70% stake in the Polish networking site Nasza Klasa (which has around 15 million users). [5]

In April 2010, the Chinese Internet giant Tencent bought a 10% stake in DST for $300m. [6]

On April 28, 2010, AOL Inc and Digital Sky Technologies reached an agreement for DST to acquire ICQ instant messaging service for $187.5 million. [7]

Quote
Facebook: the Russian connection
May 27, 2009 6:30am
by Richard Waters
| Share

Unlike a certain other internet mogul we could name, Mark Zuckerberg hasn’t actually been to Russia - though not for lack of trying.

When we caught up with him to talk about Russian firm DST’s $200m investment in Facebook (our earlier coverage is here and here), he confessed to having tried - and failed - to get into Russia when he took time off last year to travel around Europe.

Mr Zuckerberg’s description of what happened sounds like something that any other 20-something ex-college student on a European backpacking tour could relate to (even if they don’t own their own internet companies.)

First he tried to get a visa through the consulate but hit a language barrier. So instead he waited until he was in Finland to look for a way in:

You should be able to get there from Helsinki, right? It’s like an hour boat ride to St Petersburg. But apparently they celebrate labour day for two weeks there. The consulate was closed and I couldn’t get a visa.

That shouldn’t be a problem in future. DST can call on some influential connections, not least Alisher Usmanov, an oligarch with interests in metals and steel who has branched out into other investments, not least his controversial attempt to build a stake in London football club Arsenal. While confirming his involvement as an investor, Mr Milner would not confirm the size of Mr Usmanov’s interest in DST, but a report from Russian newspaper Kommersant (itself owned by the billionaire investor) this week put it at nearly 32 per cent.

This is how the FT described Mr Usmanov when he bought his first shares in Arsenal two years ago:

Mr Usmanov … with an estimated fortune of Dollars 5.5bn (Pounds 2.7bn), is a political survivor who has cultivated close ties to President Vladimir Putin’s Kremlin, and in particular to Dmitry Medvedev, the chairman of gas group Gazprom, who is seen as a potential 2008 presidential candidate. One of the few powerbrokers to survive a regime change at Gazprom, when Mr Putin became president, Mr Usmanov runs Gazprominvestholding, its finance arm.

That sounds like a calling card Mr Zuckerberg should remember to carry next time he tries to get to Moscow.

Tags: DST, Facebook

May 27, 2009 6:30am in Internet | Comment
http://blogs.ft.com/techblog/2009/05/facebook-the-russian-connection/

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