Whenever Yuri Milner enters talks to acquire stakes in internet companies outside Russia — his highest profile acquisition being 3.5% of Facebook — he first has to prove his country stands at the cutting edge of the business. "We have to tell [people] about ourselves and spend time explaining," says Milner, the chief executive and co-owner of the closely held Digital Sky Technologies (DST), which has invested more than $1bn in around 30 internet ventures. "It is not obvious to many people that Russia has high-tech expertise, very strong programmers and world-class projects."

What helps to win people over, says Milner, is a demonstration of the knowledge of the broader, global internet industry. "When they see that we can tell the fine difference between, say, the Russian and Chinese internet, or how Google is different from the South Korean search engine Naver, it breeds respect," he says. "People get interested and we feel some chemistry."

Although Western industry watchers were blindsided by DST's investment in Facebook, the world's most popular social-networking website, in May, closer scrutiny suggests that similar Russian ventures are dabbling with technology that could be the industry's future. Even more startling to the West – where memories of a Soviet command economy have been relentlessly overlaid with tales of state-indulged oligarchs – is that Russia is at the forefront of turning these online social networks into revenue streams.

One such site, Odnoklassniki.ru (Classmates), began charging for registration earlier this year, a practice Milner calls "unique". The fees may have turned away some potential subscribers but they strongly reduced spamming, he says. Another social-networking website, Vkontakte.ru (In Contact), agreed with companies that run their applications for games and other activities on the website to receive half of their revenues. Facebook charges no fee for registration and allows outside applications to run for free, Milner points out. "In this sense, Russian social networks are pioneers," says Milner, whose DST has major interests in both websites. "Russians are creative people and they aren't afraid of walking off the beaten track. It's very important to be not afraid."

Another, more practical, reason for the quicker, more aggressive search to profit from the services, Milner concedes, is the near saturation of the market, which also includes the former Soviet republics. While Facebook still focuses on expansion, its Russian counterparts are moving to the next stage, he says. Consequently, Milner believes that Russian online social networks could begin reaching out to non-Russian-speaking markets "in the foreseeable future". Indeed, Vkontakte already offers its software platform to third-parties who want to set up online social networks in other countries.

Both Odnoklassniki and Vkontakte have made large strides in generating revenue, thanks in no small part to having Milner's company as a shareholder. After DST took a stake in Odnoklassniki, the social network hired a new president, Nikita Sherman, whose task was to turn the social network into a money maker, says Vladislav Kochetkov, an IT analyst at the Moscow-based investment company Finam. Sherman, who left the post recently, acknowledges Milner's role in the efforts. "Naturally, it wouldn't have happened without his involvement." he says.

Although, Odnoklassniki and Vkontakte don't disclose their financial records, Kochetkov estimates that they have been operating at a loss but should break even in 2011, about the same time as Facebook hopes to achieve the same goal. (Facebook's chief executive Mark Zuckerberg said in May that his website would become cash-flow positive before the end of 2010.) Both Sherman and Dmitry Grishin, chief executive of Mail.ru, a DST-controlled web portal, have stressed the importance of Milner's foresight in locating promising projects as a reason for their success. "Over several years, he has never been mistaken about his strategy," Sherman says.

Milner's inspiration comes from watching the other leading countries in the industry, such as the US, South Korea and China. "If something interesting turns up somewhere, we try to find an analogy in Russia," he says. "This is how the idea to invest in online multiplayer games was born. The lead here belongs to the Chinese."

The internet may have been the devotion of the past 10 years for the 47-year-old Milner, but his career path initially followed a quite different course. After graduating from Moscow State University in 1985, Milner worked for a number of years as a particle physics researcher for the Soviet Academy of Sciences – a time he looks back on with a lighthearted attitude.

"Particle physicians don't busy themselves with going to work too often," he jokes. "Their main job is to sit back and think about the most abstract things."

He left the academy for US-based Wharton School of Business in 1999 after realising he wouldn't advance in particle science further "in any significant way". But he still takes an interest in the subject. He says he will closely follow the reopening of the Large Hadron Collider, the device expected to allow scientists to penetrate further into the structure of matter, which is scheduled for November at CERN, the world's largest particle physics laboratory near Geneva.

"Maybe, they'll find the Higgs boson," he says enthusiastically, referring to the particle that some physicists believe may give others mass and the subject of some of the most exciting physics research over the last decade.

After earning an MBA, Milner turned banker, working at the World Bank for three years to help develop the Russian nascent financial market. Afterwards, he joined Bank Menatep, founded and formerly owned by oil magnate Mikhail Khodorkovsky, who was arrested in 2003 on politically tainted fraud charges. Milner equipped the bank with a brokerage and an investment-banking division.

Milner left the bank in 1997 to buy and sell private equity, which he did for two years until he came across an internet research study by Mary Meeker, a Morgan Stanley analyst, in 1999. Her The Internet Report served as reference book for investors in the web, but Milner says he read a separate report, on European internet, which set him off investing $750,000 in 2000 into the Russian equivalents of ebay, Geocities and Yahoo — Molotok.ru, Narod.ru and Mail.ru. He teamed up in the venture with Gregory Finger, then Moscow office chief of the New York-based investment company New Century Holdings, who provided additional funding. (New Century Holdings also pitched in.) The partnership proved a success, with Milner and Finger eventually founding DST in 2005.

Through Mail.ru, which has since become one of its flagship businesses, the partners have an interest in the online marketplace Molotok, while their third original investment, Narod, is being developed by Yandex, Russia's premier search engine. Mail.ru is now ranked the number three website in Russia by its traffic, though it has taken some tough business decisions to get there. During his spell as Mail.ru's chief executive from 2001–2003 – starting in the role just as the dotcom bubble burst in the US – Milner had to order "massive layoffs" and other cost cutting measures, which he says ultimately lead the company to profitability. But Milner now seem quite content with his role as investor: "My deep conviction is that it's programmers who have to lead internet companies, or at least people that have good knowledge of the product."

Since 2005, DST has drawn financing for investments from institutional investors such Goldman Sachs, and Alisher Usmanov, a metals magnate and co-owner of London football club Arsenal, who acquired about 30% of DST last year.

In other prominent assets, the company holds an undisclosed stake in Latvian internet business Forticom that runs major online hangouts in Lithuania, Latvia and Poland. DST also owns shares in Russia's Astrum Online Entertainment, which makes and runs online multiplayer games and markets them in countries ranging from Germany to China.

DST holds interests in the largest Russian operators of electronic payments and one of the country's most popular recruitment websites. DST offers no names or locations on its website for the other 20 or so companies in which it has non-controlling stakes. All Milner says is that the companies were start-ups but does name one venture, Freelance.ru, a website where employers list freelance jobs.

Milner's endeavours have earned him recognition in the Kremlin. Russian president Dmitry Medvedev made the entrepreneur a member of a special commission created in May to assist the development of the country's high-tech industries.

But, of course, Milner's most recent trophy is Facebook, in which DST recently bought around 1.5% of common stock from current and former employees through an offer that ended on 19 August. Milner's company previously purchased 1.96% of Facebook's preferred stock for $200m, which valued the website at $10bn – $5bn less than Microsoft valued it when it bought 1.6% of the company in October 2007.

DST will consider options to buy more shares in Facebook from the secondary market, if there are offers to sell, says a source close to the situation, but Milner's key to winning the confidence of companies he's targeting for investment is offering support with respect. "We don't come and say ‘we know better than you in how to do this business'. We never say that," Milner says. "We say ‘we will always help you if you ask'… or ‘perhaps you will be interested in our opinion on issues'."

"Over the past 10 years, we've seen small businesses grow big and we have things to share with the young guys. People that start projects are largely 20-odd years old." The same approach, he said, worked during the talks with Zuckerberg. Facebook's chief is 25.

"They saw us as long-term investors just like themselves," he says. "We share the same philosophy that the internet, in several aspects, is just in the early stages of its development and what will happen in the next 10 years will be more significant than what happened over the past 10 years. This is what makes us closer."