Milner Sets Investment Sights on Social Media

In early 2009, as investor Yury Milner scoured the social-media landscape for possible targets, he didn't wait for Facebook to come calling.

He hopped on a plane and met directly with Facebook chief executive Mark Zuckerberg in Palo Alto, California, paving the way for his company, Digital Sky Technologies, to pay $200 million for an almost 2 percent stake.

"I am making big investments," said Milner, who estimates that as much as 75 percent of his time is spent traveling. "You just have to be personally involved."

Milner, 47, said he expects to get similarly involved with a lot more companies in the coming years. In December, Digital Sky led a round of funding in social-gaming site Zynga Game Network.

The plan is to spend more than $1 billion over the next five years, most of it outside Russia, Milner said in an interview. "We monitor close to 50 companies globally that can be potential investment opportunities."

He said he expects to announce at least one deal by midyear. "I'd like to see DST as a significant global investment company in the Internet arena."

Digital Sky tends to buy small stakes in large, established social-media companies that might otherwise be on the verge of an initial share sale. Such a big infusion — typically at a higher valuation than earlier investments — gives a company more time to pursue growth without the pressures faced by a publicly traded company.

Milner is "a natural choice for any web business that is at scale and interested in bringing more investors but not in an IPO," said Mark Pincus, CEO of Zynga, which was approached by Digital Sky when it wasn't looking for additional capital. "He already had a very sophisticated understanding of social gaming. It was a very good alignment of goals."

Digital Sky led a $180 million round of funding in Zynga in December.

Milner said he invests for the "very long term," comparing his style to that of Warren Buffett, an investor he admires. He declined to disclose potential targets, but analysts say candidates include microblogging site Twitter and Foursquare, a mobile service that helps users share information about their whereabouts.

Foursquare co-founder Dennis Crowley and Twitter spokeswoman Jenna Sampson didn't respond to requests for comment.

Digital Sky's investments so far "are the leaders in their categories," said independent IPO analyst Tom Taulli. Digital Sky is an investor in Vkontakte.ru and Mail.ru, a web portal that like Yahoo! also provides e-mail and other communication services.

Digital Sky's approach carries risks. It spends large sums for small stakes, gaining less sway over operations than investors that put up less money at earlier stages. Yet Milner, who has a master's of business administration degree from University of Pennsylvania's Wharton School, isn't averse to dispensing advice. He visits Zynga monthly, Pincus said.

Milner "is ready to give input, but it's a soft touch," Pincus said. "He is a trusted adviser."

Fellow investors concur.

"Yury and his team were bringing in a level of knowledge about these businesses that was the best I've ever seen," said Andreessen, a Facebook board member. "They are walking encyclopedias of all business models of Internet businesses globally."

Having worked with Digital Sky on the Facebook and Zynga investments, "we'd happily do a third," Andreessen said.

Milner, who also holds an advanced degree in theoretical physics from Moscow State University, said he's in no hurry to see Facebook sell shares and that he may remain an investor after an initial public offering. As long as Zuckerberg is leading the business, Digital Sky will be an investor, Milner said.

Digital Sky has increased its initial stake by making "opportunistic" purchases from other investors, Milner said, though he declines to disclose his current ownership. Milner said he may increase existing stakes in other companies too.

The investments have paid off for closely held Digital Sky, too, Milner says. Annual sales have doubled in recent years, and the company is "overall very profitable," Milner said. Digital Sky said its companies "comprise well over 70 percent of all page views in the Russian-speaking Internet." Digital Sky has no current plans to sell shares, Milner says.