venture capital firm: Many venture capital firms prohibit collateral investments. Yuri Milner’s summer time encourages it
A prevailing philosophy in risk capital is that allowing partners to broker personal investments can put their interests at odds with those of the company. An investor might choose to raise the valuation of a startup he owns using his employer’s money, which in turn increases his paper wealth.
Summer time sees things differently. The firm typically doesn’t invest in young companies, so it allows partners to do so individually or pool their own funds. It demands that any deal be approved in advance by the compliance department, a company spokesperson said. DST does this, according to interviews with several founders who took the partners’ money, because it allows them to track down entrepreneurs the company may want to invest in later. And it often does.
The practice is a little-known example of how Milner defies the Silicon Valley convention. Milner is the richest and most powerful Russian in global technology, and his whereabouts have come under scrutiny in the past couple of months since his home country invaded Ukraine. His companies publicly condemned the war and Milner made donations to Ukrainian relief efforts, most recently pledging $ 100 million to Tech for Refugees on April 28.
Milner, dual citizens of Israel and Russia, rose to prominence with hugely profitable bets on Airbnb Inc., Alibaba Group Holding Ltd., Facebook and Twitter Inc. He built his initial fortune – now worth $ 3.8 billion. , according to Bloomberg Billionaires Index – with funding from Kremlin-related sources. DST said it hasn’t exploited Russian money for more than a decade.
Personal investment was another controversial and ongoing element of the summer time formula. Here’s how it works: If a partner finds a young startup she wants to invest in, he writes a personal check, a so-called angel investment. If other partners want to support the same company, they finance the operation through a fund they control. There are at least two: an older one called Apoletto and a newer fund, Gemini, a spokesperson said. These are sometimes referred to in company disclosures as DST Global Partners.
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Collateral investments occur in other businesses, but they are rarely as organized and common as they are at summer time. “It’s interesting to have a business model around that,” said Emily Pahnke, who teaches venture capital and entrepreneurship at the University of Washington. “By investing before the fund’s investment thesis, they are putting their leg in the door and keeping that door open.”
Partner funds generally make investments of a little less than $ 25 million, the DST spokesman said. Part of the talk is that the startup could gain support from the DST main fund at a later date, although it is not guaranteed, said people familiar with investment negotiations who asked not to be identified because the talks were private. Any future investments will be subject to due diligence and an analytical review by the company, the spokesperson said.
Ryan Petersen, the founder of freight startup Flexport, recalls an approach by DST partner Rahul Mehta in 2015. Mehta explained that Flexport, then valued at around $ 100 million, was too small for DST, which likes to invest when companies are at least five times larger, Petersen said. Mehta brokered a small investment from the Apoletto fund and made no promises about future DST money, Petersen said.
Two years later, DST spearheaded Flexport’s next round of funding valuing the business at over $ 900 million, and Mehta was named board observer. By that point, Mehta “was already very helpful,” Petersen said. Flexport is now worth $ 8 billion.
Renaud Laplanche already had a connection with DST when he was ready to start his latest company. DST backed its previous startup, Lending Club, which burned before Laplanche was ousted over concerns about the company’s loan disclosure. For its next financial technology venture, Upgrade, Laplanche has received money from the DST partners fund. “From their perspective, the initial investment gave them an internal track on how the company was doing,” Laplanche wrote in an email.
In November, DST co-led a $ 280 million investment in Upgrade. “They already knew a lot about the business,” she wrote.
Something similar happened with the Indian auto market Cars24, where a personal investment generates a $ 200 million turnaround led by DST in 2020, said Vikram Chopra, founder and CEO.
Daylight saving time makes many of these deals, but they remain in the minority, a spokesperson said. Partner funds are used for more than just startup investments. Apoletto contains a portfolio of public shares worth more than $ 800 million, according to data compiled by Bloomberg. Regulatory documents from Robinhood Markets Inc. and DraftKings Inc. list Apoletto as a shareholder, along with DST.
The funds benefit from a virtuous circle. The vast majority of that $ 800 million is rooted in the stocks that partners receive as part of their DST investment profits, including Airbnb and DoorDash Inc. These can eventually be sold for cash to make more startup investments.