I had a chance to sit down this afternoon with Facebook CEO Mark Zuckerberg and Yuri Milner, the Founder and CEO of new investor Digital Sky Technologies.
Digital Sky Technologies is the new owner of just less than 2% of Facebook, paying a whopping $200 million for the privilege. But it’s still a bargain compared to what Microsoft and others paid – this current round values Facebook at a third less than the $15 billion valuation they accepted in October 2007. We live blogged the press call on the announcement earlier today.
The full transcript of the video is below. One thing that isn’t clear is why Facebook took the money. Late last year Zuckerberg said he’d be willing to raise more, but only at the $15 billion valuation. Now they’ve raised money at $10 billion, even though they still say they’re approaching profitability and don’t really need it. We discuss that in the interview, but the answer still eludes us.
Milner is a colorful character. He was the first Russian to get an American MBA – he graduated from Wharton Business School in 1992. Instead of taking a U.S. investment banking job he returned to Russia “to take advantage of the developing free markets,” he said, adding “My idea is to be in the most useful place in the proper time.”
Milner’s DST has made investments in Mail.ru, the “Yahoo of Russia,” and Vkontakte.ru, the largest Russian social network with 34 million users. Vktontakte, by the way, looks a lot like Facebook.
It hasn’t been all roses and champagne for Milner. He was an executive at Bank Menatep, the company that had an indirect controlling interest in Yukos Oil Company and was involved in the $4.8 billion diversion of International Monetary Fund funds. That entity was accused of having ties to organized crime, and some of Milner’s colleagues are still in prison (there have never been any accusations against Milner at all). His time at Bank Menatap is not mentioned on his DST bio.
One thing Milner doesn’t seem bothered by is the lack of a board seat at Facebook, a sticking point for the company.
Transcript:
Michael Arrington: I’m here with Mark Zuckerberg, CEO and Founder of Facebook and new investor Yuri Millner from Digital Sky technologies. Hey guys. First of all congratulations to both of you, you’ve got some more money Mark, and Yuri, you’ve got a piece of facebook. How much do you own?
Yuri Milner: 1.96%
MA: 1.96% Plus there will be more when you buy common stock in a couple of months
YM: Yes, depends, you know, we’ll see how much.
MA: Why did you invest in Facebook?
YM: Because it’s a great business
MA: You’re comfortable with the $10B valuation?
YM: Absolutely. And, you know, I can repeat the reasons why. Basically, I think they have a very unique perspective on social network monetization, that other investors don’t necessarily see. You see how social networks have been monetized in our part of the world, and we’re just doing our math and coming up with numbers that we feel very comfortable with going forward. We don’t really value this business on (fee?) basis 2009 but rather on a longer term, based again on our experience, and we’re very confident that, you know, those numbers can be achieved.
MA: And what revenue numbers are you looking at for 2009
YM: Well we…you know, it’s a question for Mark. We’ve done our due diligence but I’m not sure I can disclose that.
MA: Is it $550M Mark, is that what you’re telling investors?
Mark Zuckerberg: You know, I mean like anyone who’s doing diligence on the company gets to see the forecast, and we’ve said three things, (I’m so confused about whether to look into the camera…)
MA: Camera’s best
MZ: We’ve said three things publicly about our finances for this year. And one is that we’ve been cash flow positive for 5 quarters. Another is that revenue is growing 70% year over year at least and that you know, we’re really happy with just given the economic climate. And the third is that we expect that on our forecast we’ll be cash flow positive in 2010, along the cash level that we had before doing this investment.
So, that really made it so that when we were thinking about doing this we had a lot of optionality as to pick the partner that would be best for us and find the terms that would make the most sense for us and a lot of the investments in the portfolio that Yuri and DST have were really attractive for us in terms of the insight and understanding that they have in this space, so you were just talking about this a bit, but it’s really interesting how all of the different Russian social networks, and he has stakes in all of them, monetize in different ways, but all very effectively. Right so, we’re not looking at that and saying we want to do any of those specific models right now, but it is a very directional, it is an interesting directional indicator of how far we can expect things to scale and I think when coming up with valuation analysis, that’s why it was so simple for you to do, and that’s kind of how we were thinking.
MA: Would you have paid a higher valuation? What was your top price?
MZ: So that’s the question that you never ask after it’s done. I don’t want to know the answer to that.
MA: But I’d love to know the answer .
MA: Yuri, are you a FB user?
YM: Yes
MA: When did you create your account?
YM: It was not an extremely active account but it will be more active now
MA: You’re going to be clicking those ads. And, do you have many friends?
YM: I’ve been using more local networks in Russia
MA: You’re going to stop doing that as much.
YM: I will just use more.
MA: You’re going to social network a lot more.
YM: Yes, I’m just a big fan of social networks
MA: How popular is FB in Russia, just on the streets talking to people. Is FB THE thing?
YM: You know among people who kind of travel a lot and have exposure to the United States and some other countries, they do have accounts, but you know, Russia is not exactly the place with multiple language skills so local networks kind of have an edge. But I mean, going forward, it’s not inconceivable that people would be members of two social networks. I mean, that’s what we see in Russia, I mean, between our properties I think about 30% of people have multiple accounts. And they’re not really migrating, which is interesting.
MA: How do you feel about that? People on two different social networks? Does that work for you?
MZ: It’s interesting and it’s evolving pretty quickly but (sorry gotta look at the camera now) .
MA: Just do whatever’s comfortable.
MZ: A lot of times people ask us about, this comes up a lot when we’re talking about our platform strategy, right because, people ask us how we see the system evolving to become more open and the way that I think about is that in the early days of an industry, take for example Apple with the PC, it really makes sense to have one company doing the whole thing to kind of birth the concept and bring it out to the market, but over time if it’s a really important industry, then what will happen is people will specialize and people will do different aspects of it. Just like what happened with the pc and you get companies that focused on chips, companies that focused on other parts of hardware, companies that focused on software applications, operating systems, etc. I think we’re going to see more and more of that with social networking as well. So what started off as one monolithic thing will end up becoming a more decentralized model, and that’s a lot of what we’re trying to do with FB connect. Now, I think a big implication of that is that people will use different services.
MA: FB connect, is that the intel, the Microsoft, or the Dell in your analogy?
MZ: That’s taking analogies too far.
MA: So we’ll stick with the Apple analogy to start
MZ: There are any number of examples of the start of industries starting off centralized and becoming more decentralized and I think that one of the natural implications of that is that people will use multiple services and that the services will interoperate, and I think that’s kind of the world that we’re moving towards.
MA: Yeah, and FB will be the plumbing.
MZ: Hopefully we’ll provide a lot of utility in being people’s, in helping people share their identity and communicating with friends and the people around them.
MA: So kind of a combined Microsoft, Intel. (MZ laughs) I don’t expect an answer. I do have one question that’s sort have been on the top of my mind. We met late last year November, December and we talked about funding at that time, and you had said, look, we’re open to investing more, the $15 B valuation, we’re not really actively looking, we’re talking to some people, I don’t want to misquote you but basically what you said was: open to raising more at that valuation. Now clearly things have changes, and there’s no reason things wouldn’t change, but can you just talk me through the difference between now and then because you talk about If anything, your financial situation has gotten significantly stronger. You almost didn’t need to raise this money based on what you’re saying.
MZ: We did this to increase our option value for the future. We have no plans to use this money immediately and we may never use it. We may use it to make an acquisition or to open up data centers, if some strategic option makes itself avail and now we might be able to do it whereas otherwise we wouldn’t have been able to , that’s the option value that we gain through this investment. Just to clarify where we were before, what I was trying to kind of explain was our approach to the follow-ons after Microsoft. Right so there was the Microsoft investment of the $15 B valuation and then there were a series of other investments that we did afterwards at the same terms. And that was basically an analogous approach to us where we weren’t going out saying ok we need this money, we want to find money on whatever terms it comes on we’ll get it. We kind of said, if people want to invest at these terms that we think are good terms, and we’re really comfortable with the people, then we’ll go ahead do that. And that’s really similar to where we are now. And obviously the market is at a lower position so the terms aren’t exactly the same but fundamentally, this wasn’t a financing where we said we need to go out and raise the money to make our operating plan work, it was more one where people started approaching us and these conversations have been going on for a while, right. I don’t remember the last time that we talked about this but basically we’ve been talking to folks for a while. Recently it kind of got to the stage where we realized we have good caliber of people that we’re talking to the terms are in a good range, let’s actually go do this thing and we kind of finalized that we wanted to work with Yuri and DST and then we nailed it all down.
MA: How close did you get with General Atlantic and Silverlake?
MZ: We talked to a number of firms earlier in the process, as I was just saying, and just because things are going really well and growing quickly. I think a number of different firms…
MA: Things are definitely growing. How many, 30m users a month you’re adding, is that right? It’s about 30.
MZ: It’s growing quickly.
MA: Comscore’s over 300 million now. It’s the whole internet, there’s no one left.
MZ: Our internal numbers are lower than Comscore’s because Comscore is tracking all the unique visitors but we’re focusing on active users. But it’s growing really quickly.
so a bunch of folks just approached us to do different things and as time went on we kind of zeroed in on where we wanted to be and that’s when we really started talking seriously about what the final terms would be, and that’s where we are now.
MA: How many acquisitions will you make this year, if you just had to guess. I mean, you’re clearly going to get more active in that.
MZ: So unless I’m missing something, we’ve made one acquisition and it was this talent acquisition which in my mind was one of the coolest things that we’ve done. We got two exceptionally bright guys. Blake Ross, who is now one of the key folks on the product side at FB and Joe Hewitt, who has single handedly built out much of our mobile stuff including the iphone app by himself and just really cool. Our track record I guess you could say is we’re one for one. Might make us want to explore more of that. Honestly, to me, being cash flow positive is also really important. So I’m not looking to take this money and go do a bunch of things with it immediately. We will continue looking at talent acquisition just as we had over the last period of time and if any make a lot of sense, then we’ll surely go ahead and do it , and this money might make it more possible for that to happen, but the plan isn’t to use it for that.
MA: Yuri, more investments to come in the US?
YM: Well I have Stage 2 coming. So let’s complete this one and then have a look.
MA: Ok great, thanks very much for your time guys.
“Facebook is a great business” yes it is……I always think they should never sell facebook
Did they take the $$ to boost interest and awareness in Eastern Europe? Perhaps now people in the Eastern block will feel they can relate to and use FB more.
Mike didn’t bring up the whole holocaust thing? Strange.
Go Russia! Go!
facebook is a monster now
never sell??? Of course, yes, by default, when you have a 15B valuation (or 10B,….whatever)…you limit your potential for selling to a small list of companies with that kind of cash. good thing they have really high margins…..oh, wait!
Zuckerberg looks like such a dweeb, like he doesn’t know what he is doing there.
yeah, that’s just not correct.
Mark understands the market he is in, answers every question with a strong understanding of his business and all this from a techno geek.
The fact the he is barely an adult is mind boggling and makes the above comment nothing short of moronic!
I’m with you Jackie – there are a lot of people taking a swing at Mark and it always come back to the same thing – pure jealousy. The guy is what.. 25 years old… and he is a great job. He is growing up in the spotlight and making very few mistakes – I say way to go on raising the dough and keeping your valuation strong. Calling him a dweeb from the cheap seats is so lame.
yeah mark is doing a great job with turning fadbook into a circus. pokes, beads, drinks on me…. its becoming a cluttered joke. will never be a serious business social network. lost its focus.
PlumbingLocator.com – know your flow
Plumbinglocator.com – now thats a joke!
Haha… a plumbing social network. Now that’s a shitty site!
He’s the CEO of a massive company with very influential investors, so he either he has little idea what to do, or he’s saying nothing like a good CEO.
I believe he’s somewhere in the middle, but he’s definitely not the next Steve Jobs. For a start, he’s practically done nothing — the site exploded all on its own, and the idea wasn’t ground breaking to start with, it’s down to luck. We’ll see what happens over the next few years…
sites don’t explode on their own
You’re right, you need someone reporting every time Twitter developers wipe their ass.
hahaha very funny…
How wrong can you be Alex, I agree with your comment wholeheartedly Jackie!!
1) Great post.
2) Evaluation is still massive.
3) Twitter is no their heels.
4) The tech market moves faster then evaluations fall.
Turn up the volume…
This is a great story where the bosses of the best social network on the planet are talking about this matter. whatever it is, as long as it remains free for everyone it doesn’t matter.
Great interview, the sounds was very low on there voices and then the “techcrunch” ending almost put me through the roof ( was very loud )
Flip needs to fix the microphone issue.
I don’t think Flip needs to fix the microphone so much as these kinds of interviews shouldn’t be done on a Flip in the first place. TechCrunch has great access to people like Zuckerberg and is among the most influential technology news sources (if not the most influential) period.
I know the Flip is cool, and its great you post the transcript as I usually just read that anyway. So this is not about my preference, but TechCrunch plays in the big leagues, you get unprecedented access to real influencers and decision makers. Shouldn’t interviews like this be done a bit more professionally? By a bit more professionally I mean MAYBE a Tripod but definitely a recording device that captures the audio better?
TechCrunch breaks some great stories and interviews some amazing people (ie. this interview). These moments should be captured better than this, don’t you think?
+1
agree, but it’s not that simple. I didn’t even know I’d be able to video today. just had the flip in my pocket, asked when i was there. I guess i could bring a better camera around with me, but i have one and i never actually do. so the Flip is good for spontaneous stuff. One idea someone had is to bring a voice recorder too, and then sync the files later. I have no idea how to do that, but i’ll figure it out.
This is very easy to do. It’s pretty much drop down and cut and paste. Just get any video editing program, upload your flip file into video track 1 and audio track 1. Then delete audio track one. Now upload your audio file into audio track one, and drag it so that it matches peoples’ mouth movements. Finally save as a new file. It should take about 10-15 minutes max.
Mike – Curious- Which Flip were you using? I’ve been thinking about getting the HD but if the mic sucks might wait for them to fix. Thks
Mike can you not master it simply and amplify the volume. I had to pump my headphones up to 100% and then an email came in and my ears are still ringing.
me too
Agreed. Great interview but pump up the volume.
the audio is poor i had to turn it off i couldnt hear anything. is it me or does mark seem extra jumpy here?
He always seems pretty awkward in interviews, if anything I’d say this is one of his better ones.
I don’t mean that in a disparaging way, I have nothing but respect for the guy.
He’s really shy apparantly.. I would trade places for the money but not the pressure!
Jumpy? Naa… he’s just sitting next to a guy that just gave him a 200 million dollar check for less than 2% of his school project… I would have blown my wad before the Flip powered on.
Vkontakte.ru look like a facebook clone and now they have an english beta on…. He has a bigger plan… that even mark can’t see
There needs to be more than one Mike in the room, the audio is killn’ me broski.
Holy crap, he’s wearing a tie! Glad to see he’s finally got enough cash for a real wardrobe now.
That tie is horrendous.
“Russian to get an American MBA – he graduation from Wharton Business School in 1992?” … where did you graduation from? lol
Facebook has been very innovative but listening to these guys doesn’t seem that inspiring. Would love to see how the public markets react to this.
My big question is – when does Facebook become “uncool” – it happens to all sites and it will happen to Facebook.
Mike, great post. I like the mimics of Yuri, he looks like a poker player.
Next time do something about the volume. The whole vid was so muted. I spilled my coffee on the keyboard with the last “WHUP WHUP” showing TechCrunch….
More cram-down on valuation for Facebook. Big bet from single investor. I don’t think they’ll get back to $15B valuation anytime soon.
Way to score a great interview but it felt like you were filming it with a flip and used the native microphone for audio.
Just so I understand this, facebook doesn’t need cash but they decide to raise it so they can potentially make some talent acquisitions or build out a new data center? And those reasons are strong enough to do business with an investor that has ties to Russian organized crime??
Does this not add up to anyone else?
That’s because it was filmed with a Flip and it was the native mic.
So every Russian businessman is a member of organized crime? Oh well… Would you like it if I would say:
“Joe! oh your name is Joe right? some Joe steal my money last week! I’ll bring you to account Joe! Bring my wallet back, you thieve!”
?
$200 million for a little less than 2%? A smart move. Although “close to profitability”, with 300 million users they’re both burning through cash and sitting on a huge goldmine that needs mining. In today’s climate, cash is king and that cash should help them develop and implement their next phase of ad monetization. The opportunities generated by being the largest social network with tentacles reaching throughout the web via FB Connect as well as an entertainment hub (look at snail-mail Netflix’s recent steps and the year plus battle between SAG and AMPTP over new media provisions) should be huge. Congratulations.
It’s weird when companies raise money and then say that they don’t need it – always has been.
Just wondering.
They say the best time to raise money is when you don’t need to just like its the best time to sell your house when you’re not forced to (likely closer to home for a lot of people in today’s climate). In view of Open Table’s IPO and this deal, looks like cash to starting to flow again.
Zuckerberg is selling all these small shares of Facebook to other companies, and the values vary so much. I know the potential for FB is huge, but I just don’t think selling small stakes is the best option for a site with such a large member base.
Why didn’t you gave these guys Coffee before interview…
Mike, great interview. But please interview in making the sound better during interviews. Its so hard to hear specially yuri
Thanks
Mark – “So confused if I should look at the camera or look at you…”
My response – “No, no…look at the wall behind you so your back of the head is being shown to the viewers.”
Russian Mafia
for sure, yuri looks like a mafia don or something
Now they can strong arm Twitter… the right way.
Russian Jewish Mafia is probably more accurate.
International Jewish mafia would be even more precise.
Great interview, Michael.
Yuri, walking proof that a smart man can make a silly choice. Don’t worry Yuri, pain is an excellent teacher. You will learn from your mistake.
It’s other people’s money.
Is there any reason why the audio is so incredibly low?
Well, for first time in tech crunch, I felt like this article doesn’t sounds much as Interview, but it looks like I am hearing interview of don & crimes people….
But to be appreciation, Mark & Yuri Milner, facebook is absolutely & excellent portal with lots of new learnings & features as well.
Cheers to both of you & Tech Crunch Team!!
I don’t agree with opinion about great deal.
Social market is very don’t stable. Many companies come and leave from this market in some years, and is frequent at all without having profit to the owners which have (investors) or buy this companies.
Geosities leave this market, other companies too, the star in 2006-2008 myspace leave now. Facebook leave this market too in 2010-2012?
http://trends.g...ll&date=all
I know only one good deal in social market Yahoo buy Flickr.
PS Good interview, thanks
By-turn I think you are wrong Andrey. My opinion is every facebook-clone (vkontakte, German guys and so on) and even facebook itself has a messy structure they can’t clearly understand even for themselves what pieces are effective and what are not But this situation is for now, time will come and they made business model they’ll count an effectiveness of a system, they will distribute classic business tools and became nice and clear It is only a matter of time
Also, DST and Facebook do have some symbiotic potential, to form a mutual development strategy for example
And the last thing – Yuri do know well that Facebook is bothering and threatening StudiVZ so such a little merge is a well looking -forward insurance to prevent court suits against them
and there are much much more reasons that I see and I don’t see behind this deal
they will distribute classic business tools and became nice and clear It is only a matter of time
I read this comments 1:1 in TechCrunch , Cnet, other it-blogs & wallpapers in past time about Geocities, MySpace (many time in last year) & many other social companies.
Where this companies ?
I’m down: altavista, lycos, livedoor, worldcom… oh well Aport
where are they? became the fuel for others pretenders? burned out in a furnace? 
I don’t know
Do you really think that 23-25old person can afford a deed of such scale?
I think he can’t, but with some significant portion of luck, time and common sense (money indeed) there is a chance, someone have to do it… at least another dotcom bubble will not occur
E-companies survived in a first filtering now has a good and strong cashflow, so if Facebook will survive they can find the way, this is my personal filling
Do you really think that 23-25old person can afford a deed of such scale?
i don’t speak about person’s , i speak about trends in history. Social market is very don’t stable.
See example
http://trends.g...=all&sort=1
E-companies survived in a first filtering now has a good and strong cashflow, so if Facebook will survive they can find the way, this is my personal filling
E-companies survived in a first filtering now has a good and strong cashflow, so if Myspace will survive they can find the way, this is my personal filling
But this situation is for now, time will come and they made business model they’ll count an effectiveness of a system, they will distribute classic business tools and became nice and clear It is only a matter of time
I read it in articles about last star – Myspace….Very similar words
This audio on this is very poor. It makes the video absolutely worthless. Buy a real video camera and use it. Whatever are using now sucks.
thank you. you’re banned.
for telling the truth? incredible.
why do you take comments so personally?? the whole reason for a comments section is to hear the good and the bad ( and almost always the ugly). chill out Mike, your health will improve
Nice interview, but whats with the video camera, the tripod not working?
I know this is the age of citizen journalism, but hell the video was annoying as. Maybe you need to ask Scoble how to steady the camera and sit it slightly off to the side so your interviewees don’t get distracted by the moving camera.
Thanks god for the transcript.
It’s clear that Mark is interested in the Monetization strategies of the Russian Social Networks, however something just doesn’t seem right.
Maybe he just needs the cash? After all his place is slipping on the rich list.
great interview – thx!
now Facebook affiliate to LiveJournal
I’m damn proud! 
kek
Zuckerberg has done too much PR training now. He is a bit of a weird guy and at some points in that video he was just staring at Yuri
Russians are ahead of the rest of the world in the ‘virtual currencies’ space by more than 10 years.
Milner knows exactly what he is doing.
Jeez, MA for an interview like this you could get yourself a tripod to steady your camera or even mike these guys up?
Mike, you are a horrible cameraman
Great post btw.
Hey guys,
Did a quick re-encode of the interview and raised the volume for your viewing pleasure.
Vidquality went down in the process, but that’s not the most important imho
part1
http://www.yout...gitU&fmt=18
part2
http://www.yout...h?v=1g1xLxo8Bss
thank you. you’re banned.
HAHAHAHAHA…. just kidding. Please don’t ban me.
i know what zuckerberg and milner will do…but 10% in their pockets…isn’t that what invest money is for?
Nice interview. You have to give it MZ, he is getting it right.
Hey MA, all those advertising dollars flowing into TC and you can’t buy a tripod for that camera?
let some better quality clips encode in the background while I was at work …
couldn’t stand the poor quality of my first re-encode attempts
[BETTER VID QUALITY + reworked sound]
part1:
http://www.yout...Mxfc&fmt=18
part2:
http://www.yout...pnfY&fmt=18
good job..mail.ru is partly owned by south african company..
mark seems like he is confused and yuri is from Russia ..so watch out on the ROI mark..he will expect a good ROI..
Mark is doing a very good job.
glad they got valuation around $10billion. So every thing in this world esp social networks is not coming to an end
Zuckerburg kicks ass. It’s nice to see a young internet CEO that actually understand he’s operating a business instead of parading around San Francisco drinking and hosting “get togethers”.
I love how Arrington tries to broach all those subjects you aren’t supposed to talk about during or after acquisitions. Nice.
Great interview overall.
Nice interview. Congrats to facebook. I’m assuming part of the reason they took the $$ is to allow some of their shareholders to more easily cash some stock out.
Congrats to all the facebook folks. I’m assuming part of the reason they took the $$ is to allow some of their shareholders to more easily cash some stock out.
I think Yuri said “We don’t really value this business on a P/E basis” and not “We don’t really value this business on (fee?) basis”.
I’m sure Zuckerberg knows what he’s doing but he doesn’t “look” like an executive.
I like the guy with the skateboard in the background as mark is speaking intelligently
Thanks for re-encoding the video