John Lindfors, managing partner of DST Global, spoke with Jennifer Hughes of the FT at the RISE Conference in Hong Kong last year. The video is embedded at the bottom of this post. I actually attended the session in-person and found it quite interesting, in part because there’s not much publicly available information about DST. Lindfors briefly discussed the firm’s investment philosophy and the evolving late-stage technology investment landscape.
DST Global is a private equity firm focusing on late stage opportunities in the global internet sector. They target fast-growing category leaders, backing founder CEOs through non-controlling minority stakes. Prior and current investments include Facebook, Alibaba, JD.com, AirBnB, Spotify, Didi, Snapchat and WhatsApp. The firm was founded by Yuri Milner and has approximately US$10bn in assets under management.
Some highlights from the interview below (any mistakes are my own):
- On positioning: it’s unfair to compare DST to the average VC. As a late-stage investor, it’s pretty easy to pick the companies. By contrast, it’s much more difficult for VC firms to pick the winners. The challenge they have is that they are then coming in at much higher valuations. VCs can be a little less valuation sensitive so long as they pick the right companies.
- On investment philosophy: they are focused on companies that are either category leaders or on a path to become category leaders, so they can dominate their competitive environment and create a moat around the business. They also seek to back exceptional founders (or founding teams) because they are critical to the success of a company at that stage.
- He gave the example of JD.com: they first looked at the business plan in late 2010 and many things turned out to be different. They didn’t expect them to go into new areas like a third party platform for new merchants, financial services, on-demand delivery and so on. Founders have to be able to adapt and evolve over time.
- On investing globally: they spend a lot of time thinking about and comparing similar business models across geographies. One of the companies they didn’t get to early enough was Uber, but as a result of having spent time with the team, they ended up making other investments in the space (Didi, Ola, Go-Jek). In the past, they saw a lot of general business models originating in Silicon Valley and then being adjusted to local needs. Today, they are seeing innovation taking place in many other areas outside the Valley.
- On deal sourcing: in addition to their own research, they find the best ideas often come via referrals from founders of their portfolio companies. They also try to maintain close relationships with a few VCs they trust and have worked with previously.
- On investment process: they try to have ongoing dialogues with companies from a relatively early stage and monitor their progress over time. Ideally, they want to know the company for 18-24 months before making an investment. The actual investment process itself, however, tends to be relatively quick: anywhere from two weeks to a couple of months. They only focus on consumer internet, so think they have a relatively decent understanding of the market.
- On their size: It’s an advantage because many companies want to have investors on board that can, at a later stage, provide more capital (it makes the growth process easier for them). They prefer to start with smaller investments but, as the company performs and capital needs increase, they can commit more capital.
- They are clear about not wanting to compete with the VCs. For valuations less than US$500m, they prefer to let the VCs take the lead. At that stage, companies typically don’t raise more than US$30-50m. They want to come in as early as they can get the right risk-return dynamic. They are looking to take growth risk, not venture risk.
- On working with portfolio companies: coming in at a later stage, you tend to deploy significant amounts of capital. As a result, they tend to have lots of business and growth-related conversations with the management teams of their companies. He says he spends >50% of his time on existing portfolio companies. They are available if their companies need help, but are mindful that it’s the founders who are ultimately running the business.
- One area where they can be helpful is as their portfolio companies look to expand outside their home market. DST’s global perspective and network means they can make introductions to other companies in the space, help them think through business models and so on.
- Outlook for the consumer internet space: very positive as he sees a number of structural tailwinds. The number of connected mobile devices should increase from 3bn to 5bn over the next few years. Broadband speeds are also increasing. Plenty of opportunity for both their portfolio companies and new players.
- On fintech: says it will change the world but likely to take longer than people expect. Also thinks that incumbents are in a good position to fight back against would-be disruptors (e.g. GS has twice the number of software developers compared to investment bankers).
You can watch the full video below: