DST Global letter to LPs denies impropriety in Facebook, Twitter investments

DST Global, the investment firm led by Yuri Milner, has sent a letter to its limited partners blasting media outlets for “insinuations” that it used its holdings in Twitter and Facebook as anything other than financial investments, after it was revealed that the Russian government was indirectly an investor in DST Global.

The letter, provided to TechCrunch by a source, comes in the wake of a heated period for both companies, along with Google. The three are being questioned by the U.S. Senate, the UK government and the general public over what role Russians may have played in using their platforms to influence outcomes in elections and other democratic processes.

Dated November 6, the letter was written one day after the New York Times and the Guardian published articles about the connections between the Russian government and DST Global’s LPs based on data from the Paradise Papers, leaked offshore account information compiled by the International Consortium of Investigative Journalists.

The letter underscores how charged the climate is right now for Russian relations with Western countries; how that is playing out on social media platforms with more attention paid to the money that is channeled through them in the form of advertising and investments; and how the media is hunting for more connections between all three.

DST Global is one of the tech world’s most prominent global investment firms, with some $7 billion currently invested in a range of tech companies, including consumer internet giants Airbnb and Spotify. Sending out a letter to LPs stating its position was an essential move to shore up support from any LPs who might be wondering what is going on, keeping any chilling effects at bay; and also to make sure that LPs understand that their identities will be protected, as fund LPs are not regularly disclosed.

“There have been a number of media articles published today that have sensationalized some older and long-ago exited investments in Twitter and Facebook, omitting many relevant facts as well as the historical context,” the letter notes. “In some publications, DST Global was accused of not disclosing its limited partners to Facebook and Twitter. This is customary in the private equity and venture capital industries, and DST Global did not disclose its LPs to any of the 30+ portfolio companies in which we invested, including Facebook and Twitter.”

We have embedded the full letter below.

Earlier this week, the media reported that DST Global, the investment firm run by Russian billionaire Yuri Milner, had received money from the Kremlin through state-backed businesses, including the publicly listed financial institution VTB Bank, which is majority owned by the Russian government. That money was in turn used to finance early investments rounds in Facebook and Twitter, stakes in which Milner’s companies owned more than 8 percent and 5 percent, respectively, at one point.

Milner and DST Global divested shares in both Twitter and Facebook after their public offerings. It had sold the last of its Facebook holdings in 2013 and its Twitter shares in 2014. Notably, it isn’t illegal for foreign, state-owned institutions to invest in U.S. companies, either.

Still, even a hint of further Russian interference is a more-than-prickly subject right now in light of earlier revelations that Facebook and Twitter both showed thousands of ads planted by fake Russian accounts to foment division within the U.S. during the 2016 Presidential election. It’s widely believed that the ads — in addition to a much wider disinformation campaign that included fake Facebook accounts and bogus news stories — played a role in the political rise and eventual election of Donald Trump as the 45th U.S. President.

It remains to be seen how Milner’s ties to the Kremlin are playing with Washington regulators. One big question is whether the publication of these connections might spur questions from authorities. But Milner — a popular figure in Silicon Valley who settled part-time into a $100 million home in Silicon Valley’s Los Altos Hills in 2011 and who attended Mark Zuckerberg’s backyard wedding in 2012 — seems to continue to enjoy the support of his fellow investors.

At the Web Summit conference in Lisbon yesterday, famed investor Jim Breyer, who led Facebook’s Series A round while managing the venture firm Accel Partners, and who remained on the board of Facebook until 2013, said of Milner: “I’m a fan of Yuri. I’ve known him since 2010. I just don’t know more than that. He’s a very good investor.”

Asked if the Times story would affect Breyer’s willingness to work with Milner right now, Breyer merely shrugged and said, “I don’t know,” as if to suggest he’s waiting to see what happens next but isn’t concerned by it.

In response to the Times piece, DST Global offered a statement to the outlet, echoing similar messaging that DST has issued in the past, which is that it does not take a board seat or voting rights in any of its portfolio companies. Its Times statement further added, “It is worth remembering that Russia-U.S. relations were much better in 2009 and 2011 when these investments were made following Secretary of State Clinton pressing the ‘Reset Button‘ in Moscow in 2009.”

DST Global notes that a “majority” of its investments have been non-U.S. companies, and that less than five percent of that funding has come from VTB Bank, which it characterizes as “the only Russian government institution that invested in any DST Global fund.”

The letter from DST Global’s management team to its limited partners seems designed to assuage investors that DST will protect their identities despite coming under scrutiny itself.

“While certain assertions made by the press are inaccurate or incomplete, DST Global is not at liberty to divulge information regarding its investors and will not do so without their consent,” the firm writes.

DST also seems to take pains to distance itself from Russian billionaire Alisher Usmanov, an Uzbek-Russian oligarch who is reportedly close to the Russian prime minister, Dmitri Medvedev, and has ties to Kanton Services, an outfit that reportedly received hundreds of millions of dollars in loans from Gazprom, a state-controlled natural-gas giant.

Kanton, the Times had reported, owned one of the DST investment vehicles used to buy shares of Facebook.

Perhaps most pointedly, the letter notes that Usmanov was but one of 50 limited partners in the DST Global entities that invested in Facebook.

DST further says it had “no knowledge of any commercial lending relationships of Mr. Usmanov, including with any governmental counterparties, to finance any portion of his DST Global investments.” Not last, DST notes that while Usmanov was an LP in its first two funds, “neither Mr. Usmanov nor any other Russian investor (other than Mr. Milner and some DST Global team members) [is] an LP in any of DST Global III (2012), DST Global IV (2014) or DST Global V (2015).”

You can read the rest of its letter to investors here:

We reached out to DST Global, Facebook, and Twitter for comment on this story. We have yet to hear back from DST or Facebook. However, Twitter sent us the following statement:

“DST Global is a well known entity in Silicon Valley and a big investor in tech (they have invested significantly in Facebook, Groupon, Zynga, Spotify, Airbnb, Alibaba, Slack, Box, etc.). We announced via an August 2011 blog post that DST Global led a round of investments in Twitter. They have since divested their interest from Twitter in May, 2014.

“We can confirm that DST Investments 3 was a Twitter investor and was one of the funds of DST Global. We disclosed that DST Investments 3 was an investor / party to our pre-IPO Investor Rights Agreement and Voting Agreement and filed those agreements here and here. As a matter of policy, Twitter conducted reviews of all pre-IPO investors. After our IPO in November 2013, we reviewed all potential investors in accordance with FCC regulations.”