The New VC Scene: The Russians Are Coming, the Russians Are Coming

Twitter just nailed a walloping new funding round: $800 million. Someone thinks that the micro blogging and broadcasting site is worth more than $8 billion, given the 24.9 million shares of stock fetching $16.09 each as part of the deal, according to Delaware regulatory filings.

And that someone is Yuri Milner, Russian billionaire co-founder of DST Global, which is leading the round. Twitter gets to cash out insiders and still have plenty of money to grow before filing an IPO. In return, DST and Milner get to make money (assuming that Twitter figures out how to greatly up its income) and help change the face of venture investment in high tech.

It's not the first time he's taken a big stake in an up and coming company. A couple of years ago, DST invested upwards of $400 million in Facebook, though in two blocks. Don't count on this being an anomaly. Not only will DST keep putting money into U.S. high tech, but so will other firms from overseas.

Last year, a survey by the National Venture Capital Association and Deloitte suggested that the number of VC firms in North America and Europe would decline, and that investment money would shift to China, India, and Brazil.

That means a hole may be slowing developing in the VC infrastructure in the U.S. And it's a bad time, given another that NVCA has seen: the increasing time to file an IPO. NVCA President Mark Heesan has said that what once was a 5 to 7 year process is now closer to 10. The markets want to see bigger IPO deals, so companies must grow.

Most VCs find that time line too long. Also, many institutional investors that were a mainstay of IPOs are less interested in them because they can't invest enough at one time to make the process of managing their money efficient. It's easier to buy bonds.

The combination of factors has created a market opportunity for DST, which has stepped in and provided the additional money necessary to keep Facebook and Twitter growing and private for a while longer. But this is probably just a beginning.

Consider how much money there is in China, India, and the Middle East. Between high net worth individuals and sovereign wealth funds, there is a lot money looking for someplace to land. As the high tech deals get bigger and bigger -- particularly if the eventual Facebook and Twitter IPOs take off the way they seem like they might -- you can expect much more money from overseas looking to buy a piece of Silicon Valley's heart.

But it's not as simple as replacing one source of financing with another. Valley VCs have long been integrated into the tech industry infrastructure. Change out the backers and suddenly entrepreneurs might find that the funding game has changed, with different expectations and demands in place. It will mean learning new rules while the industry seeks a changed equilibrium.

Related:

• Venture Capital Industry Has Too Much Money for IPOs
• Venture Funding in U.S. Is Up, but Probably Not for Long
• More Bad News for the Venture Capital Set and Those that Want Funding