Yuri Milner invests in Zalando: Laying the ground for an Eastern European rollout?


Yesterday Russian VC and Facebook shareholder Yuri Milner announced that his company DST Global will take a direct minority 4 per cent stake in the German online clothing retailer Zalando for an undisclosed sum, joining the Samwer brothers (also early Facebook investors) along with other Western investors Holtzbrinck Ventures, Tengelmann Ventures and Kinnevik.

In a strategic move, Zalando hereby acquires its first major Russian investor, opening doors to future expansion in Eastern Europe where Zappos (acquired by Amazon in 2009) has yet to lay foot. With one year underway in the UK (where rival Asos is still fiercely ahead) and preparing for expansion into Austria and Switzerland, Milner’s backing will be essential if a potential Eastern European rollout is in the making.


Billions v Millions: Russia is to Germany as Milner is to Samwer?

It is an unorthodox investment move for Yuri Milner, who is known for pumping large sums of money into leading US players like Zynga, Groupon, and Y-Combinator (where he offered participants $150,000 of convertible debt loan cart blanche), skyrocketing valuation and creating shock waves in the market. In Russia, Milner gained credibility for sites like mail.ru and Vkontakte (where he’s often able to implement features long before the US original Facebook, a la Spotify).

The news marks DST’s third investment in Europe, after investing in Spotify (at $1bn evaluation) in February 2011, and Klarna, an online payments company (also last year). Other e-commerce investments included that in Chinese online retailers Alibaba and 360 Buy.

While Germany’s location between Eastern and Western Europe makes it particularly well-suited to develop strong business ties in Russia, activity so far between German companies and Russian investors has been meager. As the most Eastern Western Economy in Europe, Germany is uniquely conditioned to merge cultural differences and gain access to the Russian (and thereafter Eastern) market spaces.

Zalando may set a precedent for future Russian collaboration in the upcoming Berlin episodes.


What makes Milner so interested in Zalando? A wide open market

Founded by David Schneider and Robert Gentz in 2008 as a Zappos clone, Zalando is contributing significantly to the nearly $130bn European e-commerce market, expanding into clothing and jewelry and offering thousands of products from hundreds of brands. After opening its UK site last year, Zalando is now expanding to Austria and Switzerland.

“Zalando has a professional management team, an impressive growth record and great potential to capitalise on the fast-growing European e-commerce market,” said DST partner Alexander Tamas.

What next? Where is Zalando heading?

The investment brings several significant questions regarding Zalando’s future to the table: As Zalando is too big for an exit, will the conclusion be an Amazon merger? Does Milner’s investment add confidence to Zalando’s ability to expand to Eastern markets and then sell it back to the US?

We’re watching.