Who is funding Telegram? How a decade of unprofitability hasn't stopped the messenger app from growing

Pavel Durov, Russian entrepreneur and founder of Telegram, congratulated everyone on Telegram's latest birthday on 14 August 2023. He said the messenger app has gained over 800 million active users over the past ten years, solely through word of mouth. The evolution of Telegram has two parts.

The first is the public story of confronting the Russian authorities and positioning the messenger as a safe space for communication. The second is financial, which Durov is not so eager to publicise. This makes sense, as Telegram still cannot rely on its own resources.

At various times, Durov's company has sought financial resources for development on the side.

"Telegram is on track to reach billions of users and to require appropriate funding. When a tech project reaches this scale, typically there are two options - start earning money to cover the costs, or sell the company," Durov said in late 2020. The entrepreneur has not sold the company in three years, and the messenger's business model does not seem to be self-sufficient.

Therefore, Durov has repeatedly approached investors for help, including those close to the Kremlin's top brass.

The first investments: cryptocurrency and bonds

Telegram's image and reputation have always been built around safety and security. Durov's notorious resignation from the position of CEO of the Vkontakte social network, which he had created and developed, in 2013 and disputes with the Russian Federal Service for Supervision of Communications (Roskomnadzor), made Telegram look like an alternative and, therefore, "reliable" tool for communication. This "reliability" refers not only to the claims of the messenger's security, but also to the background of its financing.

Telegram's financial journey began in 2017. Before that, Durov supported the messenger with the funds he received after leaving Vkontakte - about US£400 million. "For most of Telegram's history, I paid for the expenses of the company from my personal savings.

However, with its current growth Telegram is on track to reach billions of users and to require appropriate funding," Durov said in December 2020. Apparently, realising the need to attract funds, three years before announcing it brothers Pavel and Nikolai Durov decided to create a blockchain platform called Telegram Open Network (TON) featuring their own cryptocurrency, Gram.

After leaving Vkontakte in 2013, Durov's full attention was focused on developing TelegramPHOTO: KREMLIN-ALIGNED NEWS AGENCY, VALERIY LEVITIN

They chose the right time to launch their cryptocurrency. Telegram had over 180 million users in 2017, and integrating Gram into the messenger app would make it the most extensive blockchain system in terms of user numbers.

"The idea was to launch their own cryptocurrency, incorporate it into the messenger app, and announce themselves as the largest system by number of users in an attempt to displace Ethereum," explained Anton Rosenberg, former Director of Special Projects at Telegram. Durov generated a buzz around TON, and Telegram secured US£1.7 billion for the project in early 2018, having previously sold 2.9 billion Gram tokens. Durov saw this as a victory, as at the time, his own funding for the messenger app had run out, and the project itself remained unprofitable.

However, the TON team delayed the release, scheduling the launch of the blockchain system for 31 October 2019.

Two weeks before that date, the US Securities and Exchange Commission (SEC) filed a lawsuit against Telegram Group Inc. and TON Issuer Inc. in the Southern District of New York, seeking a temporary ban on the sale of tokens. The SEC stated that Gram was a security in financial terms, so the issuer had to provide data on its financial position, management, business lines and possible risks. Telegram argued the opposite in court, but without success. The company was ordered to return US£1.2 billion to investors and pay US£18.5 million in fines.

Telegram's collapse in the cryptocurrency arena exacerbated the problem of financing, so the messenger app used a traditional method of attracting funds in the spring of 2021, issuing bonds (pre-convertible IPO bonds) to the tune of US£1.75 billion.

The five-year bonds were issued in the denomination of US£1,000 with an annual yield of 7%. A coupon is paid every six months, with a minimum lot size of US£500,000. Apparently, in order to boost demand, Telegram has promised to hold an IPO, during which bondholders will be entitled to convert their bonds into shares at a discount of 10-20%.

The 10% discount will apply should the IPO take place before the spring of 2024. It will increase to 15% in 2025 and 20% in 2026. Telegram issued another US£270 million worth of bonds in July 2023.

Durov wouldn't disclose the details of this placement. He merely indicated that "well-known funds with stellar reputations" took part in the buyout.

Paid subscriptions and Telegram's first earnings

Prior to the first bond sale in 2021, Telegram sent out a report to potential investors outlining its plans to monetise the messenger app. The company launched a paid Telegram Premium subscription in June 2022.

It said the move would mark "the beginning of Telegram's sustainable monetization", particularly as it would allow the development of new features while maintaining free access to the app. The previously launched advertising on Telegram did not cover costs. Back then, Durov noted that 2.5-3% of users would be enough to cover all their costs if they purchased Telegram Premium.

At the time, the messenger had 700 million users. Based on this data, Russian Forbes estimated that after paying the App Store and Google Play fees, Telegram should be earning about US£45 million a month or US£540 million a year. This amount should be added to the US£122 million a year that the messenger has to spend on interest payments on its bonds.

A year after the launch of Telegram Premium, Telegram management's optimism isn't convincing. Durov said in December 2022 that the number of paid users had reached 1 million, which is only 0.14% of the stated number of app users. Telegram's revenue from in-app purchases in the Apple App Store in July 2023 was US£2.4 million.

This is 80% of the messenger app's total revenue from the two platforms, as monthly income from in-app purchases by Android users in the Google Play Store over the same month was only US£588,000. So after more than a decade, the company still hasn't managed to become self-sustaining.

References: *Data on the number of users, estimated at the end of the year.

**Data on expenses is provided "as is" at the source, without mid-year or year-end estimates. ***The calculations are based on data that is not aligned at the beginning/end of the year, so inaccuracies are possible. ****The data is not complete as it does not include certain expenses and may not include certain revenue streams that are not publicly available.

However, as far as possible, Ekonomichna Pravda has tried to recreate the picture and provide a conservative estimate of Telegram's financial performance

Number of users, 2014-2022 - Statista, Telegram MAU, Mar 2014 - Nov 2022
Number of users, 2023 - Public statement by Pavel Durov
Expenses, 2018 - Telegram TON fundraising offering documents
Expenses, 2019, 2020 - Stenogramm of Durov's responses to SEC
Expenses, 2022 - Durov's comments on reaching break-even
Cost per user - Calculated based on Number of Users, Expenses, Historical trend of Cost Per User
Expenditures, 2013-2017, 2023, 2024 - Calculated based on Number of Users, Cost per User
Funds attracted, 2018 - Public data about amont of capital rased for TON
Funds attracted, 2020 - Public data about settlement with TON investors
Funds attracted, 2021 - Public data about bonds raised
Funds attracted, 2023 - Durov's post
Advertising revenue, 2022 - Our sources with knowledge of the business, who preferred to remain anonymous
Revenue from subscriptions, post platform fees, 2022, 2023 - Based on data from Sensortower and asobot.pro
Bond coupon payments - Calculated based on public data about the bonds
Balance - Calculated based on consolidating all the above data

SOURCE: TELEGRAM

Who is funding Telegram

Telegram attracted all their investors privately, so it is impossible to obtain a complete list of them. However, the names of some people and organisations that were listed as investors in the messenger app have appeared in the media more than once. Among TON's investors were Russians David Yakobashvili, who invested US£10 million, and oligarch Roman Abramovich.

The former is under Ukrainian sanctions, while Abramovich is on the sanctions lists of the European Union, the United States, Switzerland, Canada, Ukraine and other countries. They are both believed to have close ties to the Kremlin. The SEC found that one of TON's largest investors (US£65.3 million) was Space Investments, a firm associated with Russian Sergei Azatyan's InVenture Partners company.

Russian Forbes noted that the founder of Bank 131, Dmitry Yeremeev, also invested in Telegram. The National Agency on Corruption Prevention stated that Yeremeev, through his bank, financially or in other ways supports actions that undermine or threaten the territorial integrity of Ukraine by the Russian Federation.

Even when Telegram attracted investors through TON, a significant portion of the funds was to be used for the development of the messenger app. The documents signed by the investors did not say anywhere that the money would be spent only on TON.

Moreover, the SEC claimed that there was no TON ecosystem and that it does not exist.

This also applies to goods that could be purchased with Gram. TON depends on investors' money, and they can make money by reselling the cryptocurrency.

There are many UAE representatives among the investors who have seen the potential of TelegramPHOTO: MEDIAOFFICE.AE

It is impossible to find information about the investors in the case of bonds. All that was stated was that after losing the court case to the SEC, Durov was no longer looking for investors among US citizens.

Moreover, the media reported conflicting information about which region Telegram attracted the most investors from. In one instance, Russia and other European countries are mentioned, in another - Asia. However, there are two investment funds to which Telegram sold its bonds that are always mentioned: Mubadala and Abu Dhabi Catalyst Partners.

Both funds originate from the UAE, and they supposedly purchased US£150 million worth of the messenger's bonds.

The Emirati state-owned holding company Mubadala has been working closely with Russia. For example, in 2013, Mubadala Investment created a US£2 billion fund with the Russian Direct Investment Fund (RDIF) to invest in long-term projects in various sectors of the Russian economy. Mubadala has also invested in Russia's Pulkovo airport, projects of SIBUR (petrochemical holding), En+ and Gazprom Neft.

The fund's total portfolio in Russia is estimated at US£3 billion. En+ is a holding company founded by Oleg Deripaska. Mubadala acquired shares in En+ from his ex-wife.

After the start of Russia's full-scale invasion of Ukraine, Mubadala announced that it was suspending its investments in Russia. Abu Dhabi Catalyst Partners is a fund set up by Mubadala and the American investment company Falcon Edge Capital. The latter is co-founded by Rick Gerson.

This name was mentioned more than once by US Special Counsel Robert Mueller, who was investigating the case of possible Russian financing of Donald Trump's election campaign. Mueller claimed that Gerson was an intermediary between the Trump team, Russian officials and the UAE.

Among Telegram's investors is RDIF, which purchased bonds on the secondary market. What is the geographical structure of Telegram's premium subscription revenue?

From June 2022 to February 2023, the messenger app received the greatest revenue from in-app purchases from the Russian Federation - over US£2.5 million. Second place went to Ukraine - over US£1.54 million, and third place went to the US - over US£1.52 million. India, which supposedly has the highest number of users, brought Durov only US£164,000.

Instead of a conclusion

Analysing Telegram's financial sources leads us to the primary question: how did a platform that developed so rapidly fail to become self-sustaining?

Questions also arise about the people and organisations that invested in Telegram. In both the TON and the bond stories, Durov had a choice - the number of people willing to invest in Telegram always exceeded the demand. That is why the question arises as to why, after his high-profile exit from Vkontakte, his departure from Russia and denial of his Russian citizenship, Durov was so "careless" in his selection of investors for his messenger app.

Finally, the revenue from users, with Russia in first place, would have been much lower if Roskomnadzor had not lifted the restrictions on Telegram in 2020. "While this past decade was exciting, the next 10 years will be the time when Telegram reaches its true potential," Durov promised.

This is the second article in a series about Telegram. The first, about the messenger app's ties to Russia, is available on the Vector website. Ekonomichna Pravda appreciates Yaroslav Azhniuk, Dmytro Koshelnyk (Vector) and the Molfar OSINT community for their help in preparing this article.

New articles in this series will be published on Ekonomichna Pravda and Vector.

Ihor Pylypiv, Ekonomichna Pravda

Translation: Artem Yakymyshyn and Myroslava Zavadska

Editing: Bea Barnes