December 16, 2009
DST helping late-stage startups delay the IPO
Yuri Milner of Digital Sky Technologies stays mum on Twitter, but explains the late-stage strategy
Yuri Milner, CEO of Russian investment firm Digital Sky Technologies (DST), just stepped off the Web 2.0 Summit stage after having a chat with John Battelle, founder of Federated Media Publishing.
In the last year and a half, DST has invested $200 million in Facebook, $180 million in Zynga and $135 million in Groupon, three massive funding rounds for three prominent late-stage companies.
The unusual size and timing of these rounds, as Battelle pointed out, has led many to wonder what exactly drives DST to disrupt the traditional mezzanine level process of startup funding. According to Milner, the firm aligns itself with businesses that, while maybe expected to go public based on a formulaic timetable, don’t really wish to do so yet. Facebook and Zynga are two perfect examples of Silicon Valley startups that are in no rush to IPO.
“Through a series of transactions,” said Milner, “we take the liquidity pressure off the table so the companies can still grow and develop the product a year or two before they go public.”
Also unusually, DST does not seek board membership for Milner or any of the firm’s partners. Milner said to do so would immediately create a conflict of interest with DST’s next or previous investments. Never mind the fact that DST’s Mail.ru, the biggest social network in Russia, obviously competes head-on with Facebook. (Milner had nothing to say about that.)
So what are DST’s parameters for a prospective investment opportunity? Milner said it must be a late-stage social Web company with a billion dollar-plus valuation, located anywhere in the world. He said maybe 25-30 pre-IPO companies currently fall under that category. Since Milner wasn’t helping him out, Battelle conceded by mentioning the most obvious candidate: Twitter. (To this, Milner had nothing to say.)
Having realized that Milner would not be spilling any juicy details, as perfect an investment opportunity Twitter appears to be, Battelle shifted the conversation to understand better Milner’s vision of the future Web.
Milner confessed to having enjoyed The Social Network, arguing that it shows a new trend where mathematicians rule the world.
“When you have two billion connected and pretty powerful machines processing all this information, by definition, you're going to see a lot of mathematicians” gaining more prominence.
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What is Twitter?
Twitter is an online information network that allows anyone with an account to post 140 character messages, called tweets. It is free to sign up. Users then follow other accounts which they are interested in, and view the tweets of everyone they follow in their "timeline." Most Twitter accounts are public, where one does not need to approve a request to follow, or need to follow back. This makes Twitter a powerful "one to many" broadcast platform where individuals, companies or organizations can reach millions of followers with a single message. Twitter is accessible from Twitter.com, our mobile website, SMS, our mobile apps for iPhone, Android, Blackberry, our iPad application, or 3rd party clients built by outside developers using our API. Twitter accounts can also be private, where the owner must approve follower requests.
Where did the idea for Twitter come from?
Twitter started as an internal project within the podcasting company Odeo. Jack Dorsey, and engineer, had long been interested in status updates. Jack developed the idea, along with Biz Stone, and the first prototype was built in two weeks in March 2006 and launched publicly in August of 2006. The service grew popular very quickly and it soon made sense for Twitter to move outside of Odea. In May 2007, Twitter Inc was founded.
How is Twitter built?
Our engineering team works with a web application framework called Ruby on Rails. We all work on Apple computers except for testing purposes.
We built Twitter using Ruby on Rails because it allows us to work quickly and easily--our team likes to deploy features and changes multiple times per day. Rails provides skeleton code frameworks so we don't have to re-invent the wheel every time we want to add something simple like a sign in form or a picture upload feature.
How do you make money from Twitter?
There are a few ways that Twitter makes money. We have licensing deals in place with Google, Yahoo!, and Microsoft's Bing to give them access to the "firehose" - a stream of tweets so that they can more easily incorporate those tweets into their search results.
In Summer 2010, we launched our Promoted Tweets product. Promoted Tweets are a special kind of tweet which appear at the top of search results within Twitter.com, if a company has bid on that keyword. Unlike search results in search engines, Promoted Tweets are normal tweets from a business, so they are as interactive as any other tweet - you can @reply, favorite or retweet a Promoted Tweet.
At the same time, we launched Promoted Trends, where companies can place a trend (clearly marked Promoted) within Twitter's Trending Topics. These are especially effective for upcoming launches, like a movie or album release.
Lastly, we started a Twitter account called @earlybird where we partner with other companies to provide users with a special, short-term deal. For example, we partnered with Virgin America for a special day of fares on Virginamerica.com that were only accessible through the link in the @earlybird tweet.
What's next for Twitter?
We continue to focus on building a product that provides value for users.
We're building Twitter, Inc into a successful, revenue-generating company that attracts world-class talent with an inspiring culture and attitude towards doing business.
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Zynga is the largest social gaming company with 8.5 million daily users and 45 million monthly users. Zynga’s games are available on Facebook, MySpace, Bebo, Hi5, Friendster, Yahoo! and the iPhone, and include Texas Hold’Em Poker, Mafia Wars, YoVille, Vampires, Street Racing, Scramble and Word Twist. The company is funded by Kleiner Perkins Caufield & Byers, IVP, Union Square Ventures, Foundry Group, Avalon Ventures, Pilot Group, Reid Hoffman and Peter Thiel. Zynga is headquartered at the Chip Factory in San Francisco. For more information, please visit www.zynga.com.
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