On wings of desire

31 January 2011 By Robert Cyran Follow @rob_cyran

The decreasing need for cash by Internet startups has left the venture capital industry out in the cold. The Russian founder of Facebook investor DST now plans to fund dozens of startups sight unseen. It shows just how far power has shifted to digital entrepreneurs.

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Yuri Milner, cofounder of Russia's Digital Sky Technologies, and SV Angel are teaming up and offering financing to all 43 companies in seed investor Y Combinator's latest group of investments without conducting further due diligence.

Their investment will come in the form of $150,000 of convertible debt. If the backed company performs a followon round of financing, the debt will convert to equity at the same valuation. Normally, convertible debt from angel investors contains a cap on the value of a company and offers the holders a discount on equity pricing. Both act to increase the value of equity received by debt holders in a conversion.

DST is a Russian fund which has taken large stakes in Facebook, Zynga and Groupon. Y Combinator was founded in 2005 and has funded over 250 startups. It typically invests $18,000 for about 6 percent of a company's equity.

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