In the modern, interconnected world of international finance, DST’s investments in Facebook and Zynga are, generally speaking, not surprising. Sovereign wealth funds have billions invested in banks, government loans, and most other assets around the world.
The most striking things about DST are that it’s Russian (not, say, from western Europe or Japan), and that it is purchasing shares of high-profile Silicon Valley web companies.
The firm announced it had led Zynga’s $180 million round, earlier this week, including what we’ve heard is $50 million for employee and investor shares. At the same time, it has continued purchasing Facebook shares from former employees, after having bought $200 million in Facebook company and employee stock earlier this year.
Neither Facebook nor Zynga are planning to go public any time soon, as the companies have been saying for months. These stock sales, as investors will tell you, is a twist on how private companies have normally had liquidity events — typically it’s a sale or an initial public offering.
We caught up with DST partner Alexander Tamas earlier this week. He’s an experienced banker, based out of London, who helped put the Zynga deal together. Here are some key points that he shared with us.
Inside Facebook: Why no initial public offering for Zynga? How did you get involved in the deal?
Alexander Tamas: Zynga didn’t need an IPO, from a business perspective — the main reason to consider it was liquidity for employees and early investors.
We’ve done well with mail.ru and our gaming companies. We’ve seen success from people paying rather than advertising. We thought: this should fundamentally work in the western world. The common thought had been that users don’t pay in western markets. We reached out to Zynga about a deal.
Zynga is going to be acquisitive in the merger and acquisition scene going forward. Right now, we think that Facebook and Zynga are in their really early stages.
IF: Can you tell us any more about the valuation or the terms that stockholders are getting?
AT: We can’t comment on that. We’d agreed we wouldn’t go into detail.
IF: How does the Zynga investment, and the Facebook investment, fit into DST’s overall plans?
AT: We’re looking for extremely high growth profile web companies. We’re pretty agnostic when it comes to the location of the company. We thought Mark Pincus [the founder and chief executive] and the other founders we invest in have a strong vision for the future, rather than trying to sell in one or two years. And in terms of market position, we invest in companies that are at the top. We think that the number one players can get a disproportionate share of the market.
IF: What about strategic relationships between Zynga, Facebook, and other investments? DST has been separately been buying shares in — if not outright owning — Russian and Eastern European social networks and online gaming companies.
AT: I think in terms of openness when it comes to working together. We do facilitate introductions, if that means we do an intro to a company we own in region. We don’t get involved in operations at Zynga and Facebook.
IF: Can you tell us any more about the relationship between Facebook and Zynga, and how the DST connection fits in?
AT: Overall, Zynga is obviously an important part of the Facebook platform, because it draws a lot of people to the site every day.
IF: A lot of publications have covered the ties between DST and Russian businessman Alisher Usmanov. How do you respond to allegations that he has connections with criminal or otherwise corrupt outfits?
He’s a well-respected businessman in Russia. I also think people take him out of context — he’s only one of our investors overall. DST is still controlled by its founders [Yuri Milner and Gregory Finger]. We have a bunch of other well-respected minority investors, like Goldman Sachs [Note that Tamas and another DST partner, Verdi Israelian, have also both worked at Goldman Sachs].
IF: What are DST’s long-term plans?
We’re organized as a company, not as a fund. We don’t need to distribute money to investors. That means we can take 5 10 15 year view on these companies. This is why it’s so important to find founders who are working for the long-term. The way that people get liquidity is trading in DST shares. There may be a DST IPO at some point, which would give our investors liquidity without them having to sell shares in DST.
We’re more like Berkshire Hathaway than a venture capital firm. That’s what resonated with Mark Pincus and Mark Zuckerberg. We told them: “You’ll never have any pressure to sell or go public. You won’t have to do what’s not right for the business.”