Founded by two young engineers from PayPal — and funded by one of PayPal’s founders — Yelp did not rise from humble beginnings:
The company was, literally, conceived over lunch and funded — to the tune of $1 million — by dinnertime. At the time, Stoppelman and Simmons, who were 26 and 25, respectively, were working in a 10-person incubator created by Levchin. He instructed them to look at a handful of investment ideas, one of which was “the yellow pages for the 21st century.”As Stoppelman and Simmons ate lunch one afternoon in the fall of 2004, they talked about building a service that would allow you to e-mail a question to your friends — for instance, “Who knows a good doctor in San Francisco?” — and then publish the results online. (The idea of allowing people to publish reviews without being prompted, which is today Yelp’s core offering, was an afterthought.) It was Levchin’s 29th birthday, and about an hour after the lunch ended, Simmons and Stoppelman approached their boss and pitched the concept. They had no PowerPoint presentation and no specific revenue plan; just a sense, Stoppelman says, that they could make something that would appeal to lots of people.
Levchin hesitated. “I wasn’t sure if it would work,” he says. “But the guys were really enthusiastic about it. And in my experience, when you have smart people who work well together, it’s foolish not to invest.” Maybe because it was his birthday — or maybe because he had made tens of millions of dollars on PayPal — Levchin agreed, investing $1 million in the half-baked idea.
During its first few months, Yelp was a failure. It attracted few readers or writers beyond the founders’ friends and family, and it did not impress the venture capital investors whom Stoppelman pitched at the end of 2004. After a few weeks of unsuccessful meetings, Stoppelman and Simmons went back to the office and set about trying to improve their product. “We got the doors slammed in our face over and over again,” Stoppelman says. “But that was lucky.” Had Yelp succeeded in raising money, it probably would have attempted a national rollout. But without any additional funding, he and Simmons had to stay local. “We said, ‘You know what? If we just create a cool city guide in San Francisco and it’s worth $10 or $20 million, that would be a win. We don’t care.’ “
The idea of talking about a $20 million exit as a mere “win” betrays a hardheadedness that is one of Stoppelman’s strengths but that can also make him seem strangely cold. Stoppelman’s analytical tendencies make his reviews almost comically dispassionate. Writing on his blog about a book he read recently, The Lives of Ants, he calls it, “an okay survey of the ant species.” A review of the clothing retailer French Connection sums it up as “clothing of medium-level quality.”
Without the cash for a national rollout, Stoppelman decided to focus on making Yelp famous locally. With the help of a buzz-marketing guru he hired on a whim, Stoppelman decided to select a few dozen people — the most active reviewers on the site — and throw them an open-bar party. As a joke, he called the group the Yelp Elite Squad.
Levchin thought the idea was crazy — “I was like, ‘Holy crap: We’re nowhere near profitability; this is ridiculous,’ ” he says — but 100 people showed up, and traffic to the site began to crawl up. Because the parties were reserved for prolific reviewers, they gave casual users a reason to use the site more and nonusers a reason to join Yelp. By June 2005, Yelp had 12,000 reviewers, most of them in the Bay Area. In November, Stoppelman went back to the VCs and bagged $5 million from Bessemer Venture Partners. He used the money to throw more parties and to hire party planners — Yelp calls them community managers — in New York, Chicago, and Boston. The company now employs 40 of these people.
As Yelp’s influence grew, bars and restaurants were increasingly willing to host the parties — which involves giving away drinks, food, and space — in the hope that the crowds would come back and write positive reviews. By the summer of 2006, Yelp had amassed 100,000 reviews and was attracting more than a million users a month. That June, the San Francisco Chronicle called it “San Francisco’s online ‘it’ guide for what’s hot and not.” Around the same time, potential acquirers came calling. Neither Stoppelman nor Levchin will discuss specifics, but they acknowledge that a large technology company offered to buy the then-30-person company in 2006. Yelp turned down the offer. “It was a tough call, and it was contentious at the board level,” says Stoppelman. “Because if we said no, we’d have to build a real company.”