Meet The Russians Who Hooked Up Facebook And Goldman Sachs

Would Goldman Sachs have invested $450 million in Facebook without the involvement of DST Global, a Russian investment firm backed by a steel billionaire?

Probably not.

DST has been backing Facebook since May 2009, when it paid $200 million for a 1.96% stake (a holding that now hovers under 10%, according to a source close to the company), while Goldman has only only recently got in the Facebook game, according to a report in the New York Times yesterday. DST and Goldman have had a relationship for several years:

- Goldman has a stake in DST, though it is unclear how large the holding is or whether it was spun off as part of DST’s partial IPO in London last November.

- Goldman Sachs was lead book runner for that floatation, which was of DST’s email service Mail.ru; the IPO raised $5.7 billion and now just over 21% of the company is now free floating.

- In the last two years DST has taken on a number of bankers from Goldman, including John Lindfors, Alexander Tamas and Verdi Israelian, who joined DST as a partner in 2009 after leading private equity investments for the bank in Moscow. Some of the firm’s more junior investment team also come from Goldman Sachs.

DST Global is all over social networking. Founded by online visionary Yuri Milner, who associates with Facebook founder Mark Zuckerberg, it runs Russia’s biggest social networking sites and its operational arm, Mail.ru, has stakes in Zynga Game Network (1.47%) and Groupon (5.13%). DST also has undisclosed stakes in these companies which it originally invested in and split between itself and Mail.ru in 2009. Why it split those stakes is still unclear.

Facebook's billionaire backer, Alisher Usmanov; Image by Getty Images Europe via @daylife

The company’s biggest investor is Alisher Usmanov, a Russian steel and telecoms tycoon who is worth around $7.2 billion at our last count.

In an interview with Forbeslast year, Usmanov recalled first getting a phone call from Milner about an American social media firm. “Do you know this company, Facebook?” Milner asked, mentioning that DST had a chance to grab a piece of it. “No,” Usmanov answered. “[But] my nephews know it.”

Upon learning more about the company, Usmanov encouraged Milner to invest. As well as paying $200 million for its first shares in Facebook last year, DST in an unusual move promised to put in a further $100 million to buy out employee-owned common stock, assets which most venture fund investors would avoid as they rarely carry voting rights.

DST may still be relatively unknown in the United States and on Wall Street, but it dominates the Russian-speaking Internet market is and the seventh-largest Internet business globally based on page views, according to Comscore. Russia’s online market looks the way the U.S. did in 1999 and China did in 2004–in other words, with plenty of room to grow.

There are two different parts to DST. The entire company used to be known as Digital Sky Technologies but in September last year it re-named its operational side, including the online portals for search, e-mail and other content as “Mail.ru,” and kept the name “DST Global” for its investment arm. The renaming was not accompanied by any significant restructuring.

As for Facebook, Goldman Sachs and DST’s latest $500 million investment in the social networking company means it can put off an initial public offering to raise cash and retain a firmer grip on its own future, avoiding the regulatory complications of the SEC.

If Goldman follows through with reported plans to raise further investment from wealthy clients through a special purpose vehicle that it sets up specifically for Facebook, that could net the company a further $1.5 billion in investment, according to The Financial Times. With all that new investment potentially totalling $2 billion, DST’s Goldman connection could prove (for Facebook at least) to be very valuable indeed.

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