Would DST IPO Reveal Facebook Financials?

Digital Sky Technologies reportedly plans to go public next year in New York, and already has hired Goldman Sachs as a lead underwriter. For the uninitiated, DST is a Russian Internet conglomerate known for taking minority stakes in companies like Facebook, Zynga and Groupon. It also has lots of local investments, including in leading Russian web portal Mail.ru.

Matthew Ingram described DST as a “mutual fund of hot startups.” He’s largely right, except that mutual funds disclose financial information on underlying portfolio companies (or at least it’s easy to find, since the companies are publicly-traded). DST, on the other hand, may not be required to tell shareholders much more than company name and date of investment.

In other words, a DST IPO won’t open the Pandora’s Box that worried so many VCs during the public pension transparency debatse of 2002 and 2003.

Laurie Cerveny, a partner with law firm Bingham McCutchen, says that a company like DST typically would not be required to disclose underlying asset valuation (e.g., Facebook’s revenues) unless: (1) DST holds at least a 20% stake in the underlying asset; or (2) The underlying asset represents a certain percentage of DST’s total assets under management (I think she said 20%, but am not certain).

We can’t know if Facebook/Zynga/Groupon would qualify until DST actually files, but it’s highly unlikely. If they were to qualify, however, don’t expect confidentiality agreements in original funding docs to serve as shields. Those clauses almost always have “unless required by law” language that would apply to SEC reporting regs.