LONDON - Facebook just got a rather generous investment from Digital Sky Technologies, a Russian fund that's paying $200 million for a 1.96% stake. That values the social networking site at around $10 billion, well above the $3 billion reported in April by private-equity investors. How'd that happen? It helps that Digital Sky is backed by a deep-pocketed investor: Russian steel tycoon Alisher Usmanov, who is worth $1.6 billion at last count, reportedly has a 32% stake in the private Internet investment fund.
Four-year-old Digital Sky was founded by Yuri Milner, former head of the highly trafficked Russian portal Mail.ru, and Gregory Finger, who previously headed the Moscow office of hedge fund NCH, when the pair pooled together their individual interests in Mail.ru. The two founders are now its majority owners. Goldman Sachs and Renaissance Partners have also reportedly given financial backing to the fund.
A spokesman for Digital Sky would not confirm Usmanov's participation, but a source familiar with the company said Usmanov had a "substantial" stake. Earlier this week, the Russian daily Kommersant reported that he had upped his holding in Digital Sky to 32%, from 30%, by buying half of Renaissance Partners' 4% stake. Usmanov also owns Kommersant.
The Uzbekistan-born billionaire is best known in Western Europe for being a 25%-stakeholder in the U.K. premier league soccer club Arsenal (see "Usmanov Raises Arsenal Stake"), but he also has fingers in the Internet pie. The metal and mining tycoon reportedly owns half of LiveJournal-owner SUP, and has a stake in Newstube.ru, an online video Web site.
But Usmanov, 55, has not had the greatest success with his investments recently. The 5% stake in Norilsk Nickel that he bought last year for $2.5 billion plummeted in value to around half a billion dollars earlier this year. He also had to postpone plans to take hisiron ore and steel conglomerate Metalloinvest public in 2008 because of the financial crisis.
Digital Sky, which wants to buy another $100 million worth of Facebook's common stock from its employees, says on its Web site that it has raised and invested more than $1 billion in 30 companies, including Mail.ru and Russian social networking site Forticom. The company says its main assets account for more than 70% of all page views in the Russian-speaking Internet. The firm recently expanded into the Baltics, Eastern and Western Europe and China through its investments.
It is still hard to say what Digital Sky might want to do with its new Facebook tie-up, other than be a passive investor. There is no Russian-language version of Facebook already, but the country already abounds with other social networking sites, says Alfa Bank bank analyst Elena Millf. One of the most popular among them is Vkantakte.com, which itself mirrors Facebook's layout and features. (See "Facebook's Foreign Clones.") Vkantakte claims to be the biggest Web site in Russia, with 34.9 million users and counting.
Facebook said late on Monday that it had been approached by "a number" of potential investors, "but DST stood out because of the global perspective they bring – backed up by the impressive growth and financial achievements of their Internet investments."