For the last few years, Russia’s Yuri Milner has been the investor any Silicon Valley startup worth its salt wants to hook up with. He was one of the first, major backers of Facebook in 2009 and has since steered investments in a handful of late-stage Internet giants like Groupon, Spotify and AirBNB through DST Global, the investment fund he manages. Having led a reported $400 million funding round in Twitter in 2011, DST’s stake is estimated to have been worth $1.2 billion at the time of the company’s IPO in November. Milner himself has also piled money into a string of early-stage companies, including 23andMe, Genapsys and Coursera. He also expects to see 50 Internet companies with a market cap of more than $5 billion in the next decade. Milner rarely gives much away on detail, but he’s clearly still bullish on the growth of global Internet powerhouses.
Below are several excerpts from the interview I found interesting.
What are some of the big themes that are driving your investments now?
I think the biggest change in the last ten years is that many people are connected now. There are two and a half billion people who are connected to each other and to information, and that drives these amazing business models. We need to store this information in the cloud and search it, so then Google comes. You need to communicate more efficiently? Facebook. You need to shop more efficiently with all the information about goods in one place? Here comes Amazon. All these business models are driven by one simple fact: that everybody is connected. So as time goes by more and more people get connected, the screen size changes. It gets smaller. It becomes mobile. But fundamentally it all drives only one parameter which is the number of connected individuals and the frequency of usage.
Now, there is a good side to this, because consumers are benefiting in terms of price reduction. Price, speed, everything is optimized. Consumers are much better off. But intermediaries are not in such a good shape. If somebody was 10 or 20 years ago buying something in place A and bringing it to place B and selling it there, and making his living, he cannot do it now, because all the prices are transparent.
So if intermediation is optimized then a lot of people who were in involved in this are under pressure. For example, people in retail stores, those at the counter taking payments.
The more efficient you are, the less people you need to make the same thing. So the social cost of efficiency is an important subject, and things are happening now much faster than they used to. The question then is will people be able to adjust to that pace of change. Because few hundred years ago there was not a lot change in your lifetime. You inherit the tools from your parents and you give them to your children. There may be have been a few percent improvement in harvesting, but when improvements now happen this quickly the question is how fast people can adjust.
We thought China was an important market for the next few years and you can see a lot of innovation beginning to take place in China. Tech innovation. It used to be the case that the ideas were mostly borrowed from the U.S., and then localized in China. But now more and more you see companies that are innovating dramatically. And you see the emergence of huge businesses like Tencent, Alibaba and Baidu. It also allowed the mergers and acquisitions market to emerge. Now not only do you have a venture capital market but an M&A market, so smaller companies get acquired by bigger companies and that makes the investment environment more vibrant. So the exit now is not only an IPO but a local acquisition.
Last time we met you were focused on Mary Meeker’s prediction about the rise of mobile and social, and some of the biggest players in mobile / social today are messaging platforms. The big players are WeChat, WhatsApp and KakaoTalk with hundreds of millions of active users. What do you make of this market? Is it a fad as some suggest, or are these companies poised to become the next big players in mobile and social networking itself?
This is a new phenomenon that emerged over the course of the last few years. It is definitely a new way to communicate. The scale that some companies were able to achieve just in the course of a few years is really extraordinary. It’s an interesting variation of social because of the access to your phone book, so you can spread extremely quickly. It’s sort of a combination of something very local, which really sits on your phone, and something which is going on on the server. So it also often provides more secure communication, which is appealing to some people. So it’s an interesting new phenomenon, which has to be acknowledged, and I do believe that there will be a number of interesting companies emerging in this space.
A buzzword that’s going around in mobile is “ephemeral,” tied to the idea of self destructing photos and messaging. Do you think that has a future?
I think they discovered something very interesting about human beings, in a way that we actually value this no-trace communication. It was not obvious if you just think about it, but it turns out that some part of our brain is probably wired for those kinds of services. So I think it’s a significant innovation. I think it’s maybe one of the few significant innovations in the last couple of years that you can actually build a business around that.
Did it surprise you?
Yes it did surprise me. It fascinates me. It looks like this is something organic to young people for sure, which is very interesting.
Not leaving a digital trail that future bosses can judge them by.
Yes and this whole concept of just not having information stored. Because just before these businesses start to emerge, the idea was to have as much information as possible. So you can have your memories and go back and do many things.
Life logging seems a prime example of that.
And it turns out there is significant room for a different extreme here, which is not storing any information. That’s probably how our brains operate. Probably they have a way to sort out which information needs to be stored.
My brain is only going to remember part of this conversation.
Right. And so the brain has some way of dealing with information but the Internet was previously suited for storing everything. So maybe this is something going back to our roots where our brains are hardwired to store some information but not all of it.
You’ve said before that the Internet constitutes the ongoing development of a kind of collective brain. Perhaps we’ll see more of that in the future — not all data automatically being stored and parsed through, but only the most valuable data.
As the human brain does.
Fundamental science and the people who practice it are less and less appreciated in our world. In fact I think they’re almost marginalized in public perception. If you look at the list of celebrities that we have globally, you’ll see a lot of entertainers and athletes and some politicians and a small number of businessmen, but you don’t really see any scientists in the top 200 or 300. And I think it’s not a good thing for society at large. It wasn’t always the case.
Looking ahead, what are some late-stage companies and tech entrepreneurs that we should look out for in 2014?
Companies that are scaling globally. So that’s Spotify, AirBNB, Xiaomi, which has just branched out of China and gone into Taiwan and Hong Kong. They are really positioning themselves as global players as well. We believe that in the next 10 years there will be 50 companies in the Internet space with a market cap of more than $5 billion. And there will be 10 companies in that space in the top 100 global companies. The combined market cap of all these companies will be $3 trillion, as opposed to $1.5 trillion right now. So I think the whole market will double in terms of capitalization. There will be a big tide that will be raising many boats, some more than others.