Yuri Milner: From Russia With Billions

[00:00:09] Morning folks and welcome to today's episode called Yuri Milner: From Russia With Billions. Now I've wanted to cover Milner ever since I first came across him in Sebastian Malaby's excellent book The Power Law, I've mentioned it before, and Malaby introduces Milner in the book as follows. At the start of 2009 the CFO at Facebook took a call from Moscow. A soft Russian voice announced

[00:00:36] that he wanted to invest in Facebook. The caller had a gentle but insistent style. He had a slight build, a nose bent to his right and an oval face crowned by a smooth dome. He wanted to meet in person. Facebook did not accept capital from just anyone. The CFO told Milner bluntly, Don't come all the way here just to see me. Milner booked a plane ticket, flew to San Francisco

[00:01:02] and more or less doorstepped the CFO. So this is the story of how this small, quietly spoken Russian goes from earning just $5 a month to reaching the very peak of Silicon Valley. Investing in Facebook at a valuation that other US investors thought was crazy. Becoming one of Mark Zuckerberg's most trusted friends and advisors and then going on to make huge

[00:01:31] and really, really successful investments in Spotify, Zynga, Revolut to name just a few. And along the way, Milner has to navigate his way through the, I suppose you'd call it the oligarch infested pools of Russian business. And he survives all of the political and media backlash that comes from the revelation that much of his early money came from entities closely linked to Kremlin.

[00:01:59] And he has come out on the other side and is still riding high with a personal fortune of $8.7 billion. This is a cracking story. Enjoy. So Yuri Milner, born in Moscow, 1961. His father was an economist and he wrote dozens of books on American management systems while his mother was a doctor who worked in a state-run lab.

[00:02:24] So a very intellectual, academic upbringing. Milner enrolls at the Moscow State University, studies theoretical physics, graduates in 1985 and was working in a lab while also working on his PhD. And he was earning the equivalent of just $5 a month. But he never finished the PhD because times they were changing in Russia at that time. Because Mikhail Gorbachev, the Russian leader,

[00:02:51] he was pushing through economic reforms that deregulated the Soviet economy. So you're seeing the emergence of private enterprise. And Milner, he seized the opportunity. He started selling personal computers. He was making good money, about 40 times his lab salary. But his father saw it as a, I suppose you call it a betrayal of the family's intellectual legacy. So Milner went looking for

[00:03:18] something that, you know, to make his father happy while also following his own passion for business. Because Milner loved business. In Maliby's book, he writes the following of Milner. He was romantically pro-capitalist. The 1980s takeover artists Henry Milken, Ronald Perlman and Michael Milken were his heroes. So in 1990, with the help from his father's academic contacts, he enrolled at

[00:03:44] Wharton University. And apparently he was the first non-emigrant Soviet citizen ever to be admitted into a top US business school at that time. But he dropped out in 1992, just before completing his MBA, because he'd felt that he'd mastered the language, he'd learned what he needed. And so he took a job as a Russian banking specialist at the World Bank in Washington DC. But while he was working in

[00:04:10] Washington, Russia, which is now under Boris Yeltsin's chaotic privatization drive, it was giving young entrepreneurs, as well of course, connected Kremlin insiders and very shady gangsters, opportunities that created billionaires practically overnight. And Milner was looking at all of this change and felt like he was missing out. And so in 1995, he flies back to Moscow. And through his Russian banking contacts,

[00:04:37] he was introduced to Mikhail Kordogovsky. Now, Kordogovsky is a very interesting figure. Some of you, you'll be familiar with him. He was the guy who had gone to found Ucas, one of the largest oil and gas companies in Russia. He became Russia's wealthiest person, but he very unwisely went up against Putin politically. And in a dictatorship, that's just a big no-no. And he ended up being sent to prison for 10

[00:05:04] years, doing hard labor before eventually being released in 2013. His is a fascinating story and I will cover it. Anyway, back to 1995. Kordogovsky makes Milner the CEO at a brokerage firm that he owned. And straight away, Milner made his mark by leading Russia's very first attempted hostile takeover of Red October. This was the country's largest and most iconic confectionery brand. So it was bold,

[00:05:33] very aggressive, an American-style raid that shocked Moscow's business community. And while the bid ultimately failed, Milner impressed Kordogovsky and he very quickly rode through the ranks of a bank that Kordogovsky controlled, becoming deputy chairman and head of the entire investment division. Then came 1998. Russian banks were sitting on a mountain of risky government debt. And in August

[00:06:01] that year, the government defaulted, the ruble collapsed, Kordogovsky's bank went down and Milner was out of a job. But by this stage, Milner, he had saved some money, he had contacts, and he is a very, very smart operator. Because even though the economy was in turmoil, as we all know, this can sometimes be the best time to find great opportunities, good companies that can be bought for very little money.

[00:06:27] And so Milner and a group of investors, they bought a macaroni company. Yeah, I know, very unglamorous, but it was a great business to be in because millions of cash-strapped Russians were living on cheap pasta. So now we're in 1999. And in very much the same way that back in 1995, when he was watching the Russian privatization boom from Washington and feeling like he was missing out. Now in 1999, he's sitting in

[00:06:56] Moscow watching the massive internet explosion that's been building in the US. And Milner's favorite analyst at that time was Mary Meeker at Morgan Stanley. She was one of the real rock star analysts of the era. And again, for our younger listeners, yeah. Back in the dot-com boom, Wall Street analysts like Mary Meeker and Henry Blodgett, they actually became genuine celebrities in their own right. And Meeker's

[00:07:25] favorite internet companies back then were Amazon, eBay and Yahoo. And Milner saw a massive opportunity. In late 1999, he partnered with a US private equity fund that was focused heavily on Russia. They put in 3 million, while Milner and a partner each put in $750,000 and they founded NetBridge and it invested in Russian clones of eBay, Yahoo and Amazon. But then, and I must have said the following line in at

[00:07:53] least six other episodes, then came March 2000 and the dot-com bubble burst. NetBridge was burning through cash. There wasn't a hope in hell that it was going to be able to raise any more funds. So they had these sites, but they weren't getting any traffic. Milner was in a bind, but he found a way out by merging his business with mail.ru. So mail.ru was the number one email

[00:08:18] service in Russia. And because dial-up was an expensive luxury in Russia, users didn't really surf the web. They logged on, checked their free mail.ru inbox and logged off. So mail.ru had the users, but it was also burning through cash because they had no strategy to monetize all of that traffic. So Milner, by merging the two companies, took mail.ru's massive daily email traffic and funneled it

[00:08:46] straight into his e-commerce clones. And it worked. By 2003, the company had stabilized and was basically dominating the Russian web. Milner stepped down as CEO. He married contemporary artist, Julia Bachkova. I hope I'm pronouncing that right. In 2004, they went on to have two daughters. But he wasn't retiring. He was quietly working to take control because as a result of the 2001 merger with

[00:09:13] mail.ru, Milner's stake had been heavily diluted. So in 2005, Milner raised around $250 million from the likes of Goldman Sachs and Tiger Global. He launched DST, Digital Sky Technologies, and he takes full control of mail.ru. So by the start of 2008, DST was really going very,

[00:09:36] very well. Their web properties accounted for over 70% of all page use across the entire Russian-speaking internet. They were pulling in roughly $150 million a year in revenue, and DST was valued at around $2 billion. And so Milner now is setting his sights on Silicon Valley, and specifically Facebook, because he's been studying it very carefully, and he sees a big opportunity where others don't. But

[00:10:04] to implement his plan, he needs deeper pockets. And because we're now in 2008, we have the global financial crisis. Banks and VCs have literally shut up shop, so there's no money to be raised. So Milner puts in a call to Alisher Usmanov. In a famous 2010 interview with Forbes, Usmanov recalled Milner calling him up out of the blue and asking, do you know this company Facebook? Usmanov replied,

[00:10:33] no, but my nephew knows it. And so Milner lays out his plan and strategy for Facebook, and Usmanov invests an unknown but widely reported multi-hundred million dollar sum for a 35% stake in DST. Now, getting Usmanov involved, it would turn out to be very, very controversial. And I'll get into that

[00:10:57] later. But very quickly, to give you an idea of who Usmanov is, he's a Uzbek Russian who in the 80s had spent time in jail for fraud and corruption. He was eventually exonerated for this. But by the time we get to the 90s and 2000s, he's become one of Russia's wealthiest industrialists. He has interest in metals, mining, timber. And of course, like any oligarch who wants to thrive and survive in Russia,

[00:11:24] he has very close ties to the Kremlin. So let's look at where Facebook was at this time. We're now in 2009, and Facebook's user growth has grown significantly over the previous four years. But more users means more servers, and servers cost serious money. So Zuckerberg needed cash to keep up with the growth. Global financial crisis was in full swing, and as mentioned, venture capital in

[00:11:49] Silicon Valley had dried up. Now that doesn't mean that Zuckerberg couldn't raise money. He could. But in a depressed market, the valuation was going to be pushed down. Miller already had a pitch for Facebook before the crash. But the 2008 financial crisis was a massive lucky break for him. Because with Usmanov's investment, he now had money at a time when there

[00:12:14] isn't a lot going around, and so the timing is very opportunistic. Now, as per the passage that I quoted from Simon Maliby's book at the start of this episode, Milner calls Facebook directly, and he gets talking to the company's CFO. But getting a cold call from a Russian investor, even at a time when you're looking for investment, isn't exactly the way to raise money in Silicon Valley. So the CFO

[00:12:39] bluntly tells Miller he's not interested. Regardless, Miller books a flight, shows up unannounced at Facebook's headquarters at 11 o'clock the next morning, and forces a meeting with the CFO. And it's at this meeting that Miller shows that he's bringing more to the table than just money. He's bringing expertise, a very good strategy backed up by his own experiences and mountains of research that he's undertaken.

[00:13:07] For context, Facebook had just passed the 200 million users mark, and a lot of people in the tech sector, they were predicting that the site had plateaued, that it had reached its saturation point. But, Miller's own experience with social media, together with studies he'd done on similar businesses across multiple countries, had led him to believe that the saturation theory was just

[00:13:32] plain wrong. He believed that Facebook was still in just the early stages of growth, and he was right, and he shared all of this data with the Facebook CFO. On top of this, he was also able to show that Facebook wasn't monetizing its users in the same way that their contemporaries in other countries were. Now, this was mainly because Facebook had been so well funded up to this stage, to the tune of 500

[00:13:58] million dollars. So it wasn't under as much pressure as similar sites in other countries, where they had to start generating revenue much quicker. And as a result, they were far better at it. For example, Facebook's equivalent in Russia, which Millner had invested in, generated five times as much revenue per user than Facebook. And this was not just through ads which Facebook was using, but also through a

[00:14:23] mixture of virtual goods, microtransactions, and of course, and crucially, online games. So, when Millner walks the Facebook CFO through all of this, he is hooked. And he immediately sets up a meeting between Millner and Zuckerberg. Now, in terms of style, Milner is very quietly spoken, no big show, very calm and collected. And this style, combined with all of his expertise, it wins

[00:14:51] Zuckerberg over. And then, of course, though, Millner curries even more favor by offering two things. First, money, of course. And Millner offered Zuckerberg $200 million for just a 1.96% stake, valuing Facebook at $10 billion. Now, at this time, most Silicon Valley VC firms thought that Facebook was worth about half that. Mark Andreessen, the Netscape founder, who I've done an episode on,

[00:15:21] and who was on Facebook's board at that time, and I think he's still on Facebook's board, he was telling VCs that they needed to increase their offers. They ignored him. According to Andreessen, the other VCs were calling it crazy Russian money and dumb money. But the expertise, the money, and the valuation wasn't even the biggest part of what Millner was offering. The second thing that Millner did, or rather didn't do, is he didn't ask for a board seat,

[00:15:48] or for any voting rights. Now, this might not sound like a big deal today, but back then, it was almost unheard of. VCs and investors expected influence. They wanted a cease at the table. They wanted a say in how the company was run. Everything Millner was offering Zuckerberg, the strategies, the expertise, the money at a high valuation with no strings attached. I mean, you can see why

[00:16:14] Zuckerberg was all in. And now I know many of us might be thinking, why would Facebook even consider taking money from a Russian investor who had Alisher Usmanov as a 35% shareholder? Well, you have to look at the geopolitical backdrop of 2009. This was the era of the Obama administration's Russian recess. Dmitry Medvedev was president of Russia because the Russian constitution stopped Putin from running for

[00:16:42] a third consecutive term. And Medvedev was doing a very good job of convincing politicians and the Western media. I came across many articles that painted Medvedev in a very positive light. So he was portraying himself as this modern tech reformer. And Washington was actually encouraging business ties between American tech companies and Russian investors. Facebook did their due diligence. And look,

[00:17:09] Usmanov definitely had a shady past. But so did pretty much every Russian oligarch who survived the 90s. And given the political climate that I just mentioned, the pragmatic view was that if you wanted to open up trade with Russia, you had to overlook how that money was originally made. Otherwise, if you held every oligarch to account, like no business would ever get done. And at that time, 2009, Usmanov owned a chunk

[00:17:36] of Arsenal Football Club. He owned landmark UK estates like Beachwood House in London. And he was also president of the International Fencing Federation. So as a result of all this, Facebook accepted DST money. And by 2011, DST had put in about a billion dollars in total and held close to 10% of the company. And Milner's expertise helped Facebook big time. Because just after he invested in 2009,

[00:18:03] Zynga launched Farmville on Facebook, the game blew up instantly, giving Facebook a multi-hundred million dollar cash machine outside of traditional advertising. Within just 18 months of Milner's investment, Facebook's evaluation went from 10 billion to 50 billion. User numbers had gone up to 600 million. Revenue jumped from 770 million to $2 billion. Now, just to be clear here, all of this growth

[00:18:32] wasn't just down to Milner. There were lots of other growth strategies happening. But it's fair to say that he did play an important role. And that Facebook investment, it secured Milner's reputation in Silicon Valley. But more importantly, Milner became a trusted advisor and close personal friend to Mark Zuckerberg and to other startup founders. As the Times of London put it,

[00:18:57] his shrewdest move was to become the founder's friend and be prepared to risk huge sums of money while taking a backseat. So, what is he like? Milner is a very, very private person. Other than his philanthropic enterprises, you don't really see him interviewed that often. But this is from a Forbes article in 2011. He's notoriously good at giving nothing away about his investments or plans for

[00:19:24] the future. He sleeps four to five hours a night and travels most of the month. If he phones an investment manager at 2am with an idea, they better be ready to talk about it till five o'clock. And despite the unruffled exterior, Milner works at a furious pace and one is expected to keep up. Now, on the back of his Facebook success, Milner puts $200 million into Zynga just as it's about to

[00:19:49] take off on Facebook and he gets a 3.5 times return on investment when it floats. He invests in Groupon and while Groupon has tanked, when he put $135 million into it, he got a 10x return when it floated. He also put $380 million into Twitter and walked away with a $700 million profit when it floated. So, with all of this success that he's having, he now has heavyweight funds like Silver Lake,

[00:20:14] Fidelity, Kleiner Perkins, all lining up to invest in his funds. And this is significant because it means he no longer has to rely on Russian backed money. So, from 2011 onwards, he actually stopped taking Russian investment. And with all of these new backers, Milner continues his run of successful investments. He puts $100 million into Spotify for a 10% stake and later

[00:20:41] cashes out with a 25 times return on investment, takes a 5% stake in Alibaba, gets a 6 times return on investment. And of course, the crowning moment happens on May 18th, 2012. Facebook goes public. It's valued at $104 billion. It's the largest tech flotation in American history up to that point. Milner sold off about $2.5 billion worth of stock, but also holds onto a sizable number of shares

[00:21:10] that he then quietly sold over the following years for even more money. And on the back of all these successes, Milner's profile is really high. So, it's fair to say that by 2012, Milner had made it in America. He's worth well over a billion by this stage. He'd just spent $100 million on a 25,000 square foot French chateau style mansion. At the time, it was the highest price ever paid for a single

[00:21:36] home in America. And as with every tech billionaire, he gets involved in philanthropy. Together with Zuckerberg, Sergey Brin and others, he launches what's called the Breakthrough Prize. These are awards for theoretical physicists, mathematicians, life scientists. There's eight winners every year. Each winner gets $3 million. So, that's a total cash prize of $24 million. And the award ceremony

[00:22:01] quickly becomes known as the Oscars of science. And I kid you not, it really is just like the Oscars, except with a lot, lot more money in the room. If you go onto YouTube and type in 2025 Breakthrough Prize Ceremony, you'll see what I'm talking about. Then he teamed up with Stephen Hawkins and Zuckerberg again, putting $100 million into what's called Breakthrough Listen. This is a massive effort to find

[00:22:27] alien life form. As outlined by Milner when he wrote, with cooperation and commitment, the present century will be the time when we graduate to the galactic scale, seek other forms of life, and so know more deeply who we are. So, everything was going swimmingly for Milner until November 2017. That's when the Paradise Papers are published. These are

[00:22:54] a massive leak of over 13 million confidential offshore financial documents. And the headlines were explosive. Because the files revealed that Russia's state-controlled VTB bank had directly funded DST's Twitter stake, while the financial arm of the state energy joint Gazprom had funneled hundreds of

[00:23:17] millions into loans through offshore shell companies to back DST's $1 billion position in Facebook. And remember the timing here. This story broke in late 2017. This is just a year after the 2016 US elections. Right as Washington was hyper-focused on Russian social media disinformation campaigns.

[00:23:40] And at first glance, it did look like the Kremlin had quietly bankrolled Milner's entire ascent to the top of Silicon Valley as some sort of master plan. And he was being grouped in with all sorts of shady oligarchs. It sounded like a Hollywood spy thriller, and it posed a real trace to Milner's

[00:24:04] business future, to his ability to work within Silicon Valley and even America. But if you actually look at the cold hard facts, like the narrative that was being put out there, it wasn't as straightforward as it seemed. And Milner also wrote an open letter to counteract the allegations. And I'm taking Milner's side on this purely because the timeline and the facts back him up. Like first of all, when the DST

[00:24:31] investments were made in Facebook, Twitter and other tech companies between 2009 and 2011, taking Russian capital wasn't a crime. Remember, I already mentioned that this was the era of the Russian recess when Washington and European governments were actively encouraging commercial ties with Russia. Second point, and this is a killer point, if the Kremlin's goal was some slow burn

[00:24:56] bond villain type plot to secretly control Facebook or manipulate Twitter, doing it through Milner was a really bad strategy. Why? Well, because Milner completely sold out of both Facebook and Twitter between 2012 and 2014, well before the Russian troll farms started interfering in the 2016 US election. A third point, look at how Milner structured these deals from day one. Zero board seats, zero voting

[00:25:26] rights, zero operational control. And then a fourth and final point, as soon as Milner had built his reputation and proved he could raise money globally, he cut the cord with Russia completely. DST didn't take any Russian money from 2011 onwards. So why were the likes of Gazprom and VBT investing in DST? Well,

[00:25:49] for the very same reason that 99.99% of people invest to get a return, but maybe with a little bit of a corrupt twist, because according to Western intelligence, VBT Bank is widely seen as, and I quote, a slush fund for Putin. So when DST sold our stakes in Facebook and Twitter, VTB Bank got hundreds of millions of clean, Western audited US dollars returned straight to their balance sheets. So,

[00:26:18] in my humble opinion, the Russian money wasn't an espionage operation. It was a very lucrative financial investment, and some of that money was then most likely used to enrich Putin and some of his oligarchs. But given all of the points that I've already made, especially the political context of that time, I don't think Milner has any case to answer to here. Now, obviously, the whole affair caused a

[00:26:43] lot of turbulence for Milner, but he'd spent years building genuine, you know, rock-solid relationships with Silicon Valley's elite, and he was able to show, backed up by the facts, that he had no personal ties to Putin. He'd never even met Putin. And so he rode the storm out, and he was able to continue to raise funds and make some very astute investments. He invested $250 million in Revolut

[00:27:08] in 2018 at just a $1.6 billion valuation. Today, Revolut is valued at $116 billion, so a 67 times ROI. He put $250 million into DoorDash in 2018 at a $4 billion valuation, and it IPO-ed in 2020 at $72 billion. And there are many more like this, helping him build a personal fortune worth $8.7 billion.

[00:27:34] But his Russian background again put him straight into the spotlight when Putin invaded Ukraine in 2022, and Milner had to defend himself all over again. As he said in one interview, I cannot go back and change history. I cannot change the fact that I was born in Russia. I cannot change the fact that we had some Russian funds. And he followed this up with a tweet where he wrote, My family and I left Russia for good in 2014 after the Russian annexation of Crimea. And this summer,

[00:28:04] we officially completed the process of renouncing our Russian citizenship. So, the lazy, predictable narrative around Miller is so obvious, and I think prejudiced. He's a Russian-born billionaire, so he must be a villain or stooge. He's a billionaire Silicon Valley tech investor, so he must be bad. And look, I've come down kind of heavy on many billionaires that I've covered, because like everyone, they're flawed, but they're also in very powerful positions,

[00:28:33] which should make us very wary of their motives and question their positions on certain matters. But with Miller, I don't buy the Hollywood spy thriller narrative. What I see is a very smart and pragmatic operator who keeps his powder dry. He saw a massive window of opportunity in Facebook initially, backed it with a huge investment that others in Silicon Valley ridiculed at the time,

[00:28:58] and he played the game better than most. So, kudos to Miller, and I think he makes for a great business story. And that brings us to listeners' emails. And this one comes from Emer, who'd love me to do an episode on Dr. Ruzha Egnatova. She's the crypto queen who made billions and has disappeared and never been seen in years. It is a fantastic suggestion, Emer. And thanks so much for listening.

[00:29:25] And remember, if you have any comments, any corrections, or any story you'd like me to cover, email me at info at gbspod.com. All the best, folks.