Digital Sky Technologies, an early investor in Facebook, is currently cooking up a $1 billion tech fund, with plenty of incentives to get other investors to show up for the potluck, according to a recent tech presentation unearthed by Bloomberg.
To start the fund, DST is throwing in $50 million in Facebook stock, meaning that investors too would have an opportunity to own shares through their investment. To tweak incentive, early investors were offered the Facebook holdings at 12 percent discount of the company’s internal valuation at $74 billion, plus a 25 percent discount on the fund’s management fee.
Named DST Global III, the new fund will make non-controlling investments in late stage private companies with a valuation of $500 million or greater. A minimum commitment of $25 million is required.
Founded by Russian technology investor Yuri Milner, DST investment portfolio includes Facebook ($175 million), LinkedIn, Twitter, Zynga and Groupon. Its first fund DSTG I, returned nearly five times its invested capital, producing an annual 151 percent gross internal rate of return, according to the presentation discovered by Bloomberg. The fund also raised an additional $125 million in 2010, that was transferred to its next fund DSTG II. That fund raised $867 million in 2010, and invested $792 million in 10 companies its first year. The fund was also used for a $37.5 million investment in the music company Spotify in June of 2011, as well as $36.7 million in Airbnb in July.
DST had a $120 million early bird close on its new fund. The fund is expected to close soon.
The move follows a period in tech history of rich IPOs such as Facebook, Zynga, LinkedIn and Groupon, marking the biggest year for US IPOs in more than a decade. Facebook backer Evaluation Partners and Institutional Partners, an early investor in Zynga, are likewise seeking $1 billion for new funds.