Yesterday, Yuri Milner offered *every* new graduate of Y Combinator $150,000 in uncapped, undiscounted convertible debt. Milner did this ostensibly as an individual, rather than on behalf of his investment firm, Digital Sky Technologies, but it’s probably naive to think the gains and losses stemming from this investment won’t be absorbed by DST. Effectively, then, DST (through Milner) just purchased, for $6M (40 companies * $150k), a 3% equity stake in the Y Combinator portfolio ($150k / $5M estimated average seed round pre-money valuation for YC companies), not to mention a call option on future financings (based on goodwill and early involvement).
Most people in the tech community probably hadn’t heard of DST until its international investment arm, DST Global, invested $200M in Facebook at a $10B valuation in July 2009 (on extremely easy terms, no less). This article by Sudarshana Banerjee of VC Circle provides an extremely well-researched look at the firm, which appears likely to go public next year with help from Goldman Sachs. Owned by a Russian natural resources and media oligarch, the largest Chinese Media digital conglomerate (3rd in the world behind Google and Amazon), a South African media conglomerate, a large Russian investment bank specializing in emerging markets, an American PE/hedge fund, and, Goldman Sachs (sigh), DST is known for writing very large checks on very friendly terms to some of the best performing consumer internet companies in the United States. They also have a habit of outright buying companies in emerging markets with products that closely resemble those of their American investments.
So what does this all mean? All I’m comfortable saying is this: large business interests in Russia, China and South Africa are buying up large long positions in the highest growth sector of the American economy. And while it’s great to see outsiders go long on American innovation, I can’t help but worry that Russia, China and South Africa are proving to be better growth investors than we are. DST saw a gap in the US funding market (passive, large-volume growth equity for consumer Internet companies), and they jumped all over it, purchasing a big slice of the consumer web’s upside that American firms should’ve been smart or agile enough to capture. When it comes to the tech sector, at least, their big money is kicking our big money’s ass.
You’ve probably heard the news. No, you’ve definitely heard the news, because it’s Monday and you’ve been reading tech...