If there's one mistake this story makes, it's in trying to come up with complicated theories about why Yuri does well. He's simply smart. That's what DST has in common with Andreessen Horowitz, though they have little else in common.
And we've yet to see any sort of track record for the piles of money Milner throws around, at least the big new money he is spending in America. In what sense is he "successful?"
It's kind of sad, to me at least, the extent to which a sort of amorality has really taken hold in Silicon Valley. It's nice that he's helped your investments out, Paul, but where does Yuri's money come from? Have you looked into him and Usmanov? I mean, the sad thing about Yuri Milner to me isn't that he's an ostentatious outsider, it's that he fits in so darn well in Silicon Valley. I wish this was the sort of place that looked completely alien to someone from Moscow or Wall Street. Every year, it seems that's less and less the case, at least in terms of culture.
From what I've seen, the top funds (at least the smaller ones) are 75+% smart people (at partner level; I never met enough associates/principals to evaluate them); there are entire bad funds full of mainly dumb people from the top down.
This is kind of different from operating entities, where even stupid-dominated organizations often have some great people hiding out, or even entire great teams.
Macaroni somehow doesn't cut it.
Unless he built the Russian Chef Boyardee, it strains the imagination to believe that macaroni was anything but a front for money laundering, from the Russian Mafia, Usmanov, or who knows where.
Though I doubt YC companies are at risk of having their legs broken by Russian gangsters should they fail, because Milner is in the US and wants to play by American rules (though the US itself is rapidly moving towards the cynicism/crony capitalism/venture socialism of the Soviet bloc).
Sort of like Michael Corleone becoming a pillar of the community, these sorts of transactions buy respectability.
All that said, Americans shouldn't be too self satisfied. We'll probably realize in a few years that the $787B stimulus and the $9T Federal Reserve bailout ended up in the pockets of a few politically connected American oligarchs like George Kaiser, as the euphoria of 2009 Obama America was similar to the euphoria of 1992 Yeltsin Russia. Massive amounts of money flew around with little accountability and the hangover will be a bitch.
Anyway, from a blackbox perspective Milner's presence is good for startups at all stages, as even if he is only a threat to invest his presence forces better terms from others. I think that is the pragmatic perspective: he is a feature of the landscape, so might as well benefit from him.
(still, that macaroni calculation would be a damn interesting public spreadsheet. should be done anonymously of course...)
The first step would be to answer, "What is the name of the Macaroni factory Milner bought?" (Answer: "Extra M JSC". Source: http://forum.prisonplanet.com/index.php?topic=196698.0 )
The next step might be to figure out the size of that Extra M deal, in order to gauge its then-profitability. (Even though that has no bearing on its profitability afterwards, it is at least a starting point.)
Some sparse Extra M performance information from 2007: http://www.linkedin.com/pub/julia-malofeeva/5/98a/39a
Financial information about the Consumer Goods sector: http://biz.yahoo.com/p/3conameu.html
This is little bizarre: http://search.appliances-china.com/Look.php?ID=CaoGP4TW%2F%2... ... Extra M "company details" reads as follows: "We are international purchaser of Machinery & Industrial products for long time." It's proving difficult to find much info about Extra M.
Here's some company backround: http://enc.ex.ru/cgi-bin/n1firm.pl?lang=2&f=1143
He led it and helped it get huge. A lot of people got rich, including Millner, and Russians had great mail service. It went public on the LSE a few years ago, and is worth billions.
So, on top of substantial personal wealth, he became a known successful tech entrepreneur, so it was possible for him to get LPs for his fund.
If you change the countries and company names around, he's basically Marc Andreessen or one of the PayPal mafia.
It's not so much that silicon valley is like the Russian finance economy, it's that tech businesses are pretty similar the world around.
It's a lot more probable than a journalist becoming one of Silicon Valley's top VCs (Mike Moritz).
Just wondering, have you actually used it?
I have and my experience is that it might have been one of the best free ones available in Russian, but it surely was not great. In fact when I stopped using it a couple of years ago it was terrible: routinely dropped connections to their POP server, a web interface overladen with copious flash ads that slow you machine down to a crawl, and on top of that your email address ending up in spammers' databases without being EVER used on the web (and I even tried registering a relatively random looking address to prove the point). But the worst thing I didn't like about them was that they had the terrible practice of spamming my contacts with invites to their new social networking sites making them look like it was me who actually sent them.
Financially, in the same sense Mark Zuckerberg is.
That is the type of success mapgrep is asking about: his returns as an investor.
The hard part is always to find places that will take large amounts of money, no questions asked and that have a gambling element in it which could explain large returns in a plausible way, and in a way that will stay.
That's why casinos are very popular, ditto with antique dealerships, the real estate sector and financial services such as banking.
It's really not that much of a stretch of the imagination to use venture capital as another money laundering setup, essentially it has all the elements of a casino, large amounts of money go in, lots of it disappears and some relatively small bets pay off huge.
Another reason for making 'silly bets' is to diversify whatever the cost, because being the owner of former state enterprises and a bunch of mines always has a risk of nationalization, silicon valley investments have returns in hard currency and on top of that are unlikely to ever be taken away at the whim of some ruler.
http://en.wikipedia.org/wiki/Alisher_Usmanov has an interesting profile and if that's Milners main source of capital there are definitely some pointed questions that should be asked. This is not who you want to be indirectly involved with your startup, assuming that it is true and that this guy really is the power behind the investments Milner is making.
Pecunia non olet but some money is better refused than accepted, 'success' on the back of stealing from the people of the former Soviet Union is not something to be proud of.
Prices of raw material inputs to energy, Metals, etc went from high to low and back again during Russia's past recent history and we are making unfounded assumptions in this thread that have very little to no basis in fact.
It is equally ridiculous to propose the goal is to get money out of Russia. How does investing in startups make that any easier? If the money can get to a startup in the US, ipso facto it can get out of Russia, to any other investment.
I would not be surprised to see such an obviously mistaken comment upvoted on reddit, but it is an alarming sign to see it happening here.
The "money laundering" charge does a disservice to any legitimate qualms one might have about Oligarchy funds.
It was probably the largest theft in our lifetime and whether you call eventually turning that into assets in western countries laundering or not is arguing semantics.
Ill gotten gains get converted into more diversified and more respectable assets.
Basically these men (and their predecessors) stole a country, the fact that that gives them access to mechanisms that ordinary criminals can not afford does not place them morally above them at all in my opinion.
This period is sometimes referred to as the rape of Russia, but that makes it sound like it is over, which is far from the truth.
indeed.
> These transactions are extremely traceable.
Sure they are.
But the source of the original fortune behind all this is pretty murky and money laundering does not stop at the first stage.
Think of it as onion routing, going further and further into the legitimate world until those that handle the money have no way of proving or even knowing that the original source wasn't legit. It's all about provenance.
> It is equally ridiculous to propose the goal is to get money out of Russia.
Are you familiar with the name Berezovsky?
( http://en.wikipedia.org/wiki/Boris_Berezovsky_%28businessman... )
You can go down as fast as up in Russia, and it doesn't take all that much to cause a fall from grace.
Spreading your assets in multiple countries seems like a good idea in an environment that volatile.
> How does investing in startups make that any easier?
It's a great way to ensure yourself future income and influence, surely one or more of them will pay back big time.
> If the money can get to a startup in the US, ipso facto it can get out of Russia, to any other investment.
Sure, but that won't get you in on the ground floor of a bunch of companies that will likely be very important in the near future. The return on investment in terms of influence could be enormous, it's a risk worth taking.
Better than buying standard oil or microsoft for an equivalent amount of money.
And if it is monopoly money to them anyway, why not buy that nearly free lottery ticket?
This comment implies you peek at the number of points a comment gets before responding. Do you?
I don't think this is the case with DST. This is just a usual case of envy.
I'll take DST money any day. Hell, I'll give 10% of my company to Yuri Milner, any day, even without the investment (this is not a legally binding promise).
In practice it's such a risky investment, so it should be considered more like an option or outright gamble.
Since I don't know Alisher, I can only speak generally, but: I was born in Uzbekistan, and know a few things about the region, and the political history there, so here's my two cents:
Fabricated charges during the Soviet regime were as common as, say, marijuana arrests in the US. This has happened in my family as well: my grandfather was a state judge in Uzbekistan, and his rival framed him on bribery charges, for which he was sentenced to 7 years in a labor camp. My grandfather has always maintained that he was innocent.
How come I believe my grandfather? Because, in the court documents, the sum of money which he allegedly accepted as a bribe was ludicrously low: 50 rubles. That's like taking a bribe for $150
During the 1990's, he was also rehabilitated with the same conclusion: fabricated charges.
In fact, the charges are convenient for him, at least with respect to his public image in the West, because he can argue that he was vindicated; PR 101: leverage that vindication to ward off all other claims.
The links to Gazprom and the general public image of CIS extractive industry tycoons presumably contributes as much (if not more) to the cloud over him as the Soviet-era charges.
Smart in Russia isn't unique.
Opportunity is the scarcity. Smart also doesn't fully explain the "new money" problem. Timing might. Instability in the 90's meant opportunity but opportunity only happens in Russia with influence, in Yuri's case, "Usmanov". Expert knowledge of western economics & Russian business could also explain the ability to conceive & create a western style business in emerging Russia of the late 90's. [0] For me though, it's the link with Usmanov that clouds the "new money" problem. [1] The article also mentions Milner's religion. Highlighting Milner's religion, then questioning his integrity could be viewed as a smear attempt.
[0] The investment could be explained knowing that Boris Zakharovich Milńer PhD (father) is member of the "Russian Academy of Sciences" ~ http://www.gbata.com/jgbat.html & member of "Russian Institute of Economics" ~ http://www.guu.ru/files/gbata/english_program.doc
[1] Bill Powell, Jessi Hempel, Fortune, "Who is Alisher Usmanov?" ~ http://tech.fortune.cnn.com/2010/10/04/who-is-alisher-usmano...
That he would prefer to remain enigmatic rather than open up about his process means that he is at least partly responsible for the overly complicated theories about him. Maybe he has good reasons not to or maybe it reflects a different culture. But I find it more than a little ironic that someone so tight-lipped is a social network tycoon.
People like Milner and others associated with Russian oligarchs spend lavishly because the money they have came with no sacrifice on their part. The sacrifice came from all those miners working in subzero temperatures in the Kazakh steppe for kopeks a day, their bodies broken down prematurely, with the share of wealth that was promised to them stolen away. And instead of those who betrayed them being brought to justice, they instead depart to the West where they are greeted with applause by those who mistake cunningness with intelligence.
I usually see luck. Luck is a huge variable.