There are two kinds of investors in the world, one noisy and one quiet, the former accounting for the vast majority and the latter rare.
With the rise of the Internet boom, investment institutions are more accustomed than usual to using social networks and media to create momentum for themselves, and to publicize the investment list and achievements to the public. There are also a small number of investors, accustomed to hiding from the radar, but the "taciturn" they tend to be bolder and more direct, and the representative of them is DST Global from Russia.
As the founder and head of DST, Yuri Milner entered the Internet with the millennium operation of the Russian version of Yahoo, Mail.ru, and the heavy bet on Facebook in 2009 made DST famous. In the following years, DST participated in the early investment of Well-known companies such as WhatsApp, Twitter, Snapchat, ByteDance, Alibaba, JD.com, Didi, Momo and so on.
In Mario Gabrile's article published in The Generalist, Yuri Milner's success not only comes from a cheerful shot and a "no-meddling" investment attitude, but the success of DST has more historical accumulation and unique characteristics, which are worthy of reference and reference.
Yuri is not Gagarin
In 1961, when the Cold War was in full swing, the nuclear warheads of the United States and the Soviet Union were always aimed at each other's territory, but the real battlefield was actually space.
On April 12, at a launch site in southern Kazakhstan, a rocket took off, circled the earth for a week, and landed on the volga river. The rocket's passenger, 27-year-old Yuri Gagarin, went from the son of a Soviet carpenter to the first person on Earth to go into space after 108 minutes.
Six months later, in Moscow, the children of economics professor Boris Milner and his wife, physicist Betti, fell to the ground, and of course the baby boy was named after the hero, Yuri Milner.
Not knowing whether it was the factor of the name or the influence of Kochi's parents, Yuri showed a love of science from an early age, and when other boys put posters of Soviet football stars on the wall, the idols on the Yuri wall were Einstein, Hawking and the Nobel Prize winner, The Soviet physicist Lev Landau.
Smart, becoming a scientist is not a straight road. One of Yuri's high school teachers once dissuaded him from pursuing his dream of being a physicist, believing that he was not capable enough. "Right and cruel", Yuri still can't hide his regret in an interview years later.
Even though he was not favored, Yuri entered Moscow State University to study theoretical physics, and it was here that he realized the validity of his high school teacher's "cruel predictions" correct. When she saw her classmates surpassing her with talent, Yuri accepted her phD and left.
In 1989, the international situation changed dramatically. After a series of upheavals, on November 9, the "Berlin Wall" fell and a new era officially began. Compared to her peers, Yuri was already ready. At the age of 6, Yuri's parents enrolled him in an English class, and fluent English provided him with a new perspective on the world.
Yuri tells the story of how, at the age of 8, his father returned from a business trip to New York and Boston. In the living room, Boris opened his suitcase, and the different aromas of soap brought back from the hotel came out.
"I smelled America long before I saw it." Yuri recalls.
By chance, a family friend, who worked at the prestigious Wharton School in Pennsylvania, extended an olive branch to Yuri. And this time could not have been more appropriate – relations between the United States and the Soviet Union eased, and talents from the opposing camp had a unique "exotic atmosphere". It just so happened that another institution of higher learning, Harvard Business School admitted three Soviet students as a news event. In this context, Wharton did not hesitate to welcome Yuri to campus.
After graduating from Wharton, Yuri spent a brief time at the World Bank in Washington, D.C., where he studied the topic of "the Russian banking system and rapid privatization." I don't know if it was these studies that gave Yuri the idea to return to China to "take advantage of the development of the free market in his homeland.".
Using his american background, Yuri joined bank Menatep, founded by business superstar Mikhail Khodorkovsky, as an executive, and more fortunately, he was in charge of the bank's investment branch.
Yuri's first opportunity was to acquire the Red October Chocolate Factory, Russia's largest confectionery maker, whose position in Russia is similar to that of Hershey's chocolate in the United States. The acquisition was ambitious, but it was also risky, even if a high premium was offered to acquire the shares in the hands of employees, but the latter's determination to "never sell shares" made the acquisition unsuccessful, even if it finally won a seat on the factory board, but could not exercise any control over the factory.
Yuri herself wrote a book explaining the acquisition, but the real meaning of the "Red October Takeover" was to make him realize that rather than seeking total control over the company's hostile takeovers, it was better to have a close connection with the entrepreneur and delegate power to the latter.
In 1998, Menatep suffered a series of allegations, including money laundering, which eventually collapsed. Yuri, who became a free agent, first ventured into private equity, and when he studied a lot of research reports, the newly emerging Internet aroused his great interest. One of morgan stanley's analysts was his favorite, the man who predicted the rise of eBay and Amazon, the "internet queen" Mary Meeker who would later become famous. Yuri praised the then-unpromising "Queen" as "extremely inspiring".
But Yuri doesn't plan to return to silicon valley digging in the United States, but to try his luck in his hometown, after all, why can't Moscow have its own eBay and Yahoo?
However, Yuri also needs a partner, and Grigory Finger, an old friend who met while working in a bank, is a suitable candidate, both of whom have the same experience in the United States and are interested in the Internet. "We both have chemistry." Yuri said this about her relationship with her partner.
The two men's fund, under the name NetBridge, was officially opened.
The current Mail.ru is still the same as Yahoo in the past| screenshot of the official website
Creating a "Russian Version of Yahoo"
What no one expected was that the websites that would later leave their names in the history of the Russian Internet were first born in New York, USA.
Similar to Yuri, Alexey Krivenkov gave up his career as a scientist and managed to travel to New York, where he was fascinated by visits in the 1990s. Although he could only make a living by washing cars at first, Alexey soon took up a job at dataArt, a company that studied computer science at Eugene Goland.
DataArt started out in hardware, but the latest business software consulting was very appetizing to Alexey, and his exposure to the web in college gave him great potential for growth. Due to visa problems, Alexey had to return to St. Petersburg, but it was here that he was able to gather a group of talented friends and form an outsourced team to lay the foundation for the Mail.ru.
On New Year's Eve 1997, Microsoft announced the acquisition of Hotmail for $500 million, and the news had a huge impact on alexey's team, and they decided to provide free email services to people. Alexey bought Mail.ru domain name from a friend for almost $500 and got a gifted programmer.
"It's not a business plan for us, it's just a cool thing." Alexey recalled.
Although I did not want to make money, Mail.ru in Russia was unsurprisingly hot, and early Internet users flocked to it. DataArt also raised $1 million for Alexey's new project.
As the project has grown, Mail.ru has provided services that are not only mailboxes, but also music, instant messaging, job hunting, and so on. Apparently the $500 domain name was no longer worthy of its ambitions, Mail.ru renamed Port.ru.
On the other hand, Yuri and his partner NetBridge's strategy is to look for opportunities for "geo-arbitrage." The first projects they found were Molotok.ru, a Russian version of eBay; a Russian version of Amazon, 24x7.ru.
Theoretically, Yuri and Alexey would not intersect, but the collapse of the millennium dot-com bubble put Port.ru projects at risk, even though the valuation has reached $100 million, but in the face of Silicon Valley's mourning, it is more difficult to attract investment in Russia.
NetBridge's situation was also not ideal, and the two projects invested were not as expensive, but there was little return. At this time, Yuri saw the development potential of Port.ru and immediately pounced on it.
Yuri and his partner merged NetBridge with Port.ru, and the new Mail.ru group became a new landmark for the Russian Internet, spanning a wide range of businesses. Alexey, on the other hand, retired at the age of 23 and took the money to italy to study handmade papermaking.
Over the next few years, Yuri leveraged the technology of private equity to lay off 80% of the group's workforce and introduce an advertising revenue model, transforming Mail.ru from a promising but revenueless startup into a real commercial company. Through online gaming, Mail.ru successfully turned positive revenue in 2006.
At the 2019 Breakthrough Awards, Milner and Zuckerberg took the stage to | Visual China
Invest in Facebook to Move to Silicon Valley
When Mail.ru business was getting on track, Yuri's investor souls recovered, and he and his partner focused on the new project Digital Sky Technologies (DST), which also received investment from Naspers and Tencent, as the Internet accelerated, and even Russian financial giants. The addition of international capital Tiger Global and Goldman Sachs has also opened a new door for DST.
At the same time, although Russia has "copied" silicon valley's network innovation, to some extent, the former's social media companies are more mature than in the United States. Because Russian netizens are more late to the Internet, this means that they first reach social networking sites before registering their emails. Due to the previous harsh investment environment, Russian social networking sites had to consider monetization at the beginning.
As a "front-row viewer," Yuri and her partner were able to get an up-close look at how social networking sites turn traffic into cash, a multibillion-dollar experience.
Goldman Sachs, which had invested in DST, brought Yuri news that Facebook was about to raise funds. However, despite the help from the financial community, given that DST is only a group and not a fund, there are not hundreds of millions of dollars of "ammunition" in hand; at the same time, Yuri may be famous in the Russian Internet circle, but no one in Silicon Valley knows him.
In the face of Facebook's outright rejection, Yuri was unyielding. In a conversation with Gideon Yu, Facebook's head of finance at the time, Yuri said that her experience with social networking site monetization could help Facebook and asked to meet for details, but the latter thought it might be a "waste of your time."
Not minding the "soft nails", Yuri came with enthusiasm. After chatting for 15 minutes at Starbucks next to Facebook's office, Yu agreed to arrange a meeting for Yuri and Zuckerberg.
When Yuri and Zuckerberg actually sat down to talk, in the words of Vaughn Smith, former Facebook developer VP, they were "still confused."
In the previous two years, Facebook's valuation had reached a staggering $15 billion, but given that the world economy was still respite from the previous year's financial crisis, the people at the meeting thought that the more pertinent figure should be $1 billion to $4 billion — which means that not many people realize the potential of the social media giant in the future.
During the negotiations, yuri showed great confidence in the development of the social network thanks to her knowledge of Facebook's data, which allowed DST to offer much higher prices than other bidders. Of course, in addition to throwing money, Yuri also showed Zuckerberg the operating data of DST's social networking sites and analyzed them in detail. This allowed Yuri and Zuckerberg to establish a more personal connection.
"He (Yuri) is very good at building relationships with tech founders." Smith recalls.
Of course, such an investment is also risky. In general, a large investment like DST usually gets a seat on the board of directors of the investee company. That doesn't work with Zuckerberg, though, because he wants to take full control of the company.
Perhaps influenced by the "Red October Chocolate Factory Acquisition", Yuri agreed to Zuckerberg's decision. "You don't have to be on the board to exert influence." Yuri later said. In the end, DST finally invested $200 million in Facebook at a valuation of $10 billion.
DST thus appeared on the radar of the tech circle, but in the eyes of many Silicon Valley people, the former became a representative of foreign "stupid money", but this did not affect the mood of Yuri and the team, because in 2010, DST was listed on the London Stock Exchange in the following year, and its market value exceeded $8 billion.
Social media used to be the domain of DST| Image: The Generalist
The Secret of the Rise of DST
In the 12 years since it invested in Facebook, DST Global has invested in hundreds of companies and grown into a multi-billion dollar giant fund under management. According to the introduction, DST has only lost money in two cases of large investments. Luck is certainly a factor, but yuri and his team's investment philosophy clearly play a more important role. If you summarize it, there are roughly four factors to its success.
Look at the early days
Hindsight is always simple, and people often fantasize about what would happen if they invested in Apple, but the truth is that they often look down on companies and projects with real potential when times change. And like a handful of investors, DST has seized the opportunity of paradigm shifting, with three points highlighted:
1 Potential for social network monetization
2 The rise of global e-commerce
3 The feasibility of the sharing economy
As mentioned earlier, due to the different experiences, DST can see the monetization potential of social networks in advance, which allows them to make early investments in Twitter, WhatsApp, Snap, and domestic social companies such as Momo and ByteDance after Facebook and get rich returns.
Like discovering the potential of social media, DST discovered the disruptive power of e-commerce at a very early age. Yuri once recalled seeing the percentage of users buying online and had a hunch that the number would double in the future. Without hesitation, DST then launched jd.com, Alibaba, Flipkart and Meituan to establish a surprising e-commerce investment matrix.
Liu Qiangdong once told the story of accepting DST investment in "My Entrepreneurial History": Yuri said that he could invest up to $1.5 billion when he met, and the more JD.com went to the market, the more he wanted to invest, making Liu Qiangdong "almost think he was a liar".
In the end, DST accounted for $500 million of JD.com's Series C financing.
In addition to social networking and e-commerce, DST is also involved in the sharing economy, in addition to Airbnb, DST is also an investor in Didi and Ofo, of course, these two investments may not look successful now, but they are still predictable at the time.
DST excels at finding the same industry targets around the world| Image: The Generalist
2. Global arbitrage
While there are advantages to keeping an eye on local companies, DST is targeting globalization, which not only increases the chances of spotting potential targets, but also replicates the fund's early experience. When it finds that a particular business model is viable, DST looks for similar companies around the world.
For example, when DST found that the takeaway service was a viable model, in addition to investing in Gojek in Indonesia, DST also invested non-stop in DoorDash in the United States and Deliveroo in Europe. The same techniques are being used in several vertical tracks such as grocery delivery, online banking and online car sales.
One advantage of this is that after investing in multiple companies, the DST fund will become an important variable in the track compared to other VCs. Just as Yuri used Mail.ru data to convince Zuckerberg, DST can now use the experience gained from investing in the German car sales site AUTO1 to invest in cars and other similar companies.
This investment method can also be quickly corrected, just like Yuri quickly opened investment in Didi, Ola and Ofo after missing Uber and Pinduoduo, and Pinduoduo's "replacement" is The Indonesian social shopping company Super.
Investing globally not only allows DST to quickly reuse the experience gained, but also allows it to have a safety net when it misses out on powerful players without being completely frustrated.
Third, it is easier to accept investment
As can be seen from DST's investment in Facebook, Yuri and the team are flexible enough to accept higher valuations and less control. Pushing this thinking to the extreme, DST has even tried a completely seamless investment model.
In 2011, Yuri launched a fully automated fund, start Fund, which was revolutionary — every project that entered Y Combinator, a well-known incubator in Silicon Valley, received $150,000 in investment and had no choice. For founders who are still in the early stages, $150,000 looks more like a Pre-seed round investment than YC's $20,000.
Although it has only been two years, Start Fund has invested in several potential companies that have raised hundreds of millions of dollars so far, such as "poison" Goat in the United States to raise nearly $500 million, online lending LendUp to raise $361 million, and others to sell giants at the right time, such as K12 online education Clever by Kahoot! Acquired for $500 million, smart home platform SmartThings was acquired by Samsung for $200 million.
It can be seen that StartFund's model can be said to be lucrative, and more importantly, it allows DST to build its own coordinate system in the world's most well-known incubator at a cost of about $10 million per round, which is basically worthless for the VC industry.
With StartFund, you can see that DST is willing to try any way, as long as it makes the investment, or makes it easier for entrepreneurs to accept their own investment.
Four support the founders
In the media, Yuri is often portrayed as a person who does not smile. For tech founders, though, Yuri's extensive experience and direct personality make it easier for them to take the latter's advice. More importantly, Yuri will let the founders know that DST is on their side.
The iconic event of Facebook's investment represents the attitude of DST, and compared with some venture capitalists such as Sequoia who are more aggressive in the management of the invested companies, DST has become a representative of "no interference".
Of course, not interfering does not mean that the work is on the wall, and DST also strives to establish a long-term relationship with the founder. According to industry insiders, DST investors have invested more energy in the Deliveroo project than other VCs, even if the project itself is not so profitable.
DST was able to win the hearts and minds of its founders, and perhaps one of the most important signs was Facebook's acquisition of WhatsApp. Yuri revealed that he tried several times to invest in WahtsApp, but was rejected, until early 2014, when CEO Jan Koum finally accepted DST in Yuri's California mansion.
Three days later, though, Zuckerberg, an old friend of Yuri's, extended an olive branch to WhatsApp. Disappointed, Yuri told Jan, who came to consult, that Facebook's acquisition was a good business and that he should accept it. Two weeks later, news broke that Facebook had acquired WhatsApp for $19 billion.
However, the attitude of still thinking about each other when the investment is in vain makes Zuckerberg and Jan agree to let DST invest at a price 3 times lower than the purchase price, which is equivalent to giving DST money for free, and the decision of the two makes Yuri feel "can't help it".
Two lessons can be learned from this, treat a founder friend who is about to be acquired by Facebook; there may not be a venture capitalist who can move a founder more than DST.
Catch the next wave
No one can sleep on the merit book, especially in the investment industry, and DST is clearly reluctant to stop. In 2021, DST made a total of 73 investment projects in the United States, China, India, Latin America and Europe. Although these investment projects have not left the big channel of the "consumer Internet", DST has already made some gains in the B-end Fintech industry.
In order to catch the next wave, DST began to build an internal research team, and many of the new recruits have research backgrounds, which will bring DST a broader vision to cover new trends and new markets.
For senior investors, DST delegates the power to allow them to make early investments in the name of private on projects that are updated but not verified, while employees within the company can follow suit to form an internal investment team. In the case of fintech company Zolve, it had accepted individual investments from up to 16 DST investors before accepting DST's Series A funding round.
Like other VCs, DST is gaining interest in the cryptocurrency industry. Perhaps because of missed investments from several major exchanges, DST has invested in projects such as BlockFi, Cobo, Bitwise, and Blockchain.com in 2021.
The love of e-commerce makes DST more sensitive to logistics and daily grocery logistics. Gorillas, a Europe-born grocery delivery site that promises to get its shipments in less than 10 minutes, raised a staggering $1.3 billion in a year and a half to match that goal. Gorillas faced a challenge similar to Facebook's, with overvaluation and no monetization path, another opportunity to test DST's vision.
Header image source: ctech