A Russian Star Rises in Silicon ValleyBy
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.