Silicon Valley Bubble Warning: From the Bubble-Blower-in-Chief

Alisher Usmanov, the Russian magnate behind DST, is telling reporters that he thinks valuations are starting to get too high in tech. Usmanov, owns about 10 percent of Facebook, said he’s cautious about investing more money in Internet companies, as prices may have peaked.

DST is the late stage investment firm that in 2009 and 2010 put hundreds of millions of dollars into mature startups like Zynga, Facebook, and Groupon.

It was those very valuations that first got people screeching about a bubble.

Alisher Usmanov, the Russian magnate behind DST, is telling reporters that he thinks valuations are starting to get too high in tech. Usmanov, owns about 10 percent of Facebook, said he’s cautious about investing more money in Internet companies, as prices may have peaked.

DST is the late stage investment firm that in 2009 and 2010 put hundreds of millions of dollars into mature startups like Zynga, Facebook, and Groupon.

It was those very valuations that first got people screeching about a bubble.

Fortunately, we’re probably not in a bubble – certainly not because of DST’s investments.

One thing Zynga, Facebook, and Groupon have in common is that they are not only enormously popular, they also all make a lot of money – enough to justify their crazy high valuations.

[quote]”Investments in Internet companies start to bring less profits compared with two or three years ago when we began to invest in them almost at a startup level,” Usmanov said in a phone interview Friday. The $500 million March acquisition of a 5 percent stake in Chinese web retailer 360buy.com through Usmanov and Milner’s DST Global may have been his last big direct web investment for some time, he said.[/quote]

Usmanov and Milner are among Internet investors that have been backing some of Silicon Valley’s fastest-growing businesses. Their firm led a $135 million investment in daily-deals site Groupon last year and was part of a group that put $180 million into Zynga Game Network, a social gaming service, in 2009.

[quote]”There’s certainly a lot of concern that we’re getting into a real bubble around Internet companies, and I can understand that some people are getting cautious,” said Keith Arundale, a London-based venture capital consultant and former director in PricewaterhouseCoopers’ global technology group. Very high valuations “seem to be extending to a lot of Internet companies” both large and small, he said.[/quote]

Bubble talk is also strange to hear coming from Usmanov because he and business partner Yuri Milner just raised another pile of cash to invest in Internet companies through a fund called DST Global 2.

What’s probably actually going here is that everyone and their brother is now copying DST’s late-stage pre-IPO investment strategy – buyout founders and early investors, take non-votiing shares – and Usmanov would like to keep plucking all the low-hanging fruit all by himself.