Deal Radar 2008: Yelp

Yelp is a popular site where users review trendy and not-so-trendy local businesses in their city. Yelp users can write reviews, read reviews, discuss topics and share their opinions and experiences with others on an endless list of topics such as restaurants, stores, hairstylists and real estate brokers. Started in 2004 in San Francisco, the site has expanded to cover cities in 37 states, with an aim to go international.

Founded by Jeremy Stoppelman and Russel Simmons, both formerly of Paypal, Yelp has carved out a niche for itself in the world of review sites. It has overtaken its closest competitors like Citysearch, who now seem like the Yellow Pages in comparison. What Zagat guides were to restaurants, Yelp is to an assortment of local businesses.

I am a fan of Yelp. Among other such stories, my most recent delight was finding an absolutely fantastic but carefully hidden Japanese restaurant in San Francisco called Eiji where we had authentic delicacies from hamachi kama or yellowtail cheek to ankimo or monkfish liver. On Yelp, readers had raved about oburu tofu.

Yelp’s angel round was funded by previous employer Max Levchin, co-founder of Paypal. The company raosed a $5 million Series A from Bessemer Venture Partners and a $10 million Series B from Benchmark Capital. In an attempt to expand its presence in more cities nationwide, Yelp has garnered $15 million from DAG Ventures in a fourth round of funding at a valuation in the range of $200 million. Revenues are in the sub $10 million range. (Source: TechCrunch) Ads and sponsorships range from $200 to $2,000 a month.

$31 million in funding, $10 million in revenue, and a $200 million valuation … pretty bubbly? The thinking driving Yelp’s investor euphoria is the holy grail of local search and advertising, a $100 billion a year market that was previously dominated by the Yellow Pages, and is now turning. [Read Cal McElroy’s It’s About Place.]

The driving force behind Yelp’s popularity is its simple user interface, wide fan base of reviewers and the opportunity to get recognized and complimented by others for one’s reviews. Yelpers are rated on a star basis, and Elite Yelpers very often get invited to previews or opening parties at shops, galleries and restaurants.

The stats are noteworthy: approximately 8.3 million uniques for February, and over 2.3 million reviews. (Source: TechCrunch) With a free ‘content producer workforce’ of reviewers, relatively low operating costs, and wide popularity, Yelp is an attractive acquisition target for one of the large Internet companies like Google that are going aggressively after the local search/advertising market. Microsoft and Yahoo, currently busy elsewhere, could also find the company attractive, as could IAC and News Corp.

On the other hand, if Yelp can scale an ad sales force, they also have enough user uptake momentum that scaling the company as an independent property would also be very interesting proposition. However, scaling an ad sales force isn’t easy, and most publishers have difficulty with this part of their business. Especially, in Yelp’s case, advertisers are a highly fragmented bunch.

This segment is a part in the series : Deal Radar 2008