The firms, Moscow-based Digital Sky Technologies (DST), New York-based Tiger Global Management and Palo Alto, Calif.-based Andreessen Horowitz, recently led a $180 million investment round for an undisclosed stake in social gaming company Zynga.
The deal, like DST’s $200 million investment in Facebook in May, has left many in Silicon Valley scratching their heads. The firm seems willing to justify outlandish valuations on brand-name U.S. Internet properties—is it “dumb money” or some subtly brilliant strategy? A puzzle, at least until you get a fuller picture of the two firm’s other holdings:
- DST once owned a stake in mail.ru, a company DST CEO Yuri Milner once ran. The company’s site gets enough traffic to make it the second most popular site in Russia and the 32nd in the world, according to data from Alexa. It is unclear if the firm still owns any meaningful stake in the company, with reports showing it may have been the shareholder that sold shares to South Africa-based Internet company Naspers in 2007.
- DST invested in vkontakte.ru, which has been called a Facebook clone. It’s the 34th most trafficked site in the world.
- DST invested in One.LT, a Lithuanian social network that commands the third most trafficked website in its home country.
- Tiger Global Management invested in social networking company One.ee, an Estonian social networking company operated by Aktsiaselts Forticom, no traffic stats are available.
- Tiger Global invested in Jabbar Internet Group, a company that runs Middle-eastern focused Internet properties such as an Arab-language search engine, an online payments platform, an online gaming destination and an advertising network.
- Tiger Global invested in Mynet.com, a Turkish Internet portal that is the ninth most frequented site in that country, according to Alexa. It also owned a stake in Yonja, a Turkish social network, records show.
- Tiger Global invested in Russian search engine Yandex, records show.
- Both firms also own a handful of other global Internet properties such as job sites
The two firms are well positioned to help Zynga grow beyond the bounds of Facebook, or even other U.S.-based social networks.
In addition to the doors this deal may open, the investment also allows Zynga employees to obtain some measure of liquidity by selling to the investment group. This type of arrangement has become increasingly popular with older startups who wish to both stay private and offer their employees an incentive to stay with the company.
Zynga may find itself in need of money. The company has re-cast its revenue model after bloggers complained that it was exploiting the naivety of its users by offering scam-like lead-generation offers. The offers, typically made in exchange for some sort of in-game reward or currency, could result in the users being charged for services they never intended to sign up for, the bloggers wrote. Zynga dropped this form of revenue generation in response to the blogger’s complaints, forgoing as much as a third of its revenue, according to reports.
The company may also find itself the subject of a class action lawsuit. Law firm Kershaw, Cutter & Ratinoff posted a call for complaints about unauthorized charges made through the use of social games run by Zynga.