DST's Alexander Tamas Talks About New Investors, New Investments and Dealing With Troubling Russian Stereotypes
After Russia-based Internet investor Digital Sky Technologies got $388 million in a stock-swapping deal with South Africa media giant Naspers–coming after an earlier $300 million investment from China’s Internet behemoth Tencent–BoomTown dialed up DST partner Alexander Tamas in London to interview him about the implications.
This developing international spiderweb of digital and media companies begged the question of what DST might do with all this new dough, especially since it has created quite a splash over the last year investing massive gobs of money in high-profile, social-focused U.S. Internet companies.
Actually, said Tamas, the money is for expansion of DST’s core businesses in Russia, Poland and the Baltics–in email, social networking, gaming and entertainment–at units such as Mail.ru, which was co-owned by Naspers and DST.
In essence, said many analysts, it will simplify its ownership structure, and could eventually lead to an IPO for DST.
For a 30 percent stake in DST and the $388 million, Naspers forked over its 39.3 percent stake in Mail.ru into DST.
“The idea was for us to be able to completely control our Russian portfolio,” said Tamas, part of a series of moves which included its recent purchase of AOL (AOL) instant messaging unit ICQ for $187.5 million in cash. “We wanted 100 percent at one company.”
Also a goal: To better link its services with those in China, owned by Tencent, which invested $300 million in DST in April, giving it just over a 10 percent stake.
Naspers, by the way, owns 35 percent of Tencent.
“It’s a pretty good dialog all around,” said Tamas (pictured here), linking companies with both global and local aspirations.
But it’s the global ambitions that have attracted the most attention to DST of late, which, Tamas noted, created some confusion and unfair maligning of the company.
Interestingly, although it is all mashed up on its Web site, DST itself is not technically the entity that maintains its investments in companies such as Facebook.
That would be DST Global, its international arm which directly hold the stakes. It is not part of the Naspers or Tencent deals.
Of course, both are run by the same people, especially DST CEO Yuri Milner, and DST has a stake in DST Global.
“Initially, DST did fund those transactions,” said Tamas. “But we wanted to separate these investments from the Internet company to give investors the clearer differentiation.”
As to its future investments, Tamas said the company will likely fund start-ups that “check the boxes,” including exponential growth and social virality.
That means only two investments annually, as opposed to 10.
He also said DST would continue to fork over large sums–its invested well over $100 million in each of its U.S. deals.
“There is a perception that we pay high prices,” admitted Tamas, who noted its Facebook investment is now valued at much more. “But we have a global outlook on what we are investing in.”
DST is also a believer in getting some of that financing in the hands of founders and early investors, since it relieves financial pressure to sell or go public before a start-up’s time.
“We want to give the companies we invest in a year or two run,” said Tamas. “That is the sweet spot.”
He said, after its U.S. flirtation, that DST is now looking more in Asia and Europe.
But, even with its expansion and getting investments from well-known media giant such as Naspers, Tamas said he is not sure DST can shake the continued questions about the sources of its funding, especially given some of its initial investors are clearly part of the much-maligned Russian business oligarchy.
“We always have to explain and justify all of Russia,” said Tamas defensively. “Obviously, Naspers did its due diligence, as have others, and they feel comfortable with DST.”
Still, Russian issues will remain a concern for the long term. As noted in a recent report by Bank of America (BAC) investment unit Merrill Lynch, for example, on the Naspers-DST deal:
“We are also concerned that DST’s dominance in the Russian internet space (close to 70% market/mind share) may attract the scrutiny of the Russian government. The precedent with the other leading Russian internet company Yandex, when the government got a veto on sale or a golden share, signals that the government may not welcome a full takeover of DST by Naspers or Tencent.”
“We know the issues,” said Tamas. “But the best digital companies going forward are going to have to understand and operate in different parts of the world that are not just in Silicon Valley.”