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Yelp, a Web site that features reviews of local businesses, said it has received as much as $100 million in funding from private equity firm Elevation Partners and will use the investment to expand its sales force and compensate employees.
The investment values Yelp at $475 million, say two people familiar with the matter. That compares with more than $500 million offered by Google (GOOG) before takeover discussions broke down in December. The $100 million includes $25 million through the purchase of preferred stock, and as much as $75 million that can be used to purchase equity from employees and earlier investors.
Executives at Yelp plan to use the funding to grab a bigger share of the local online ad market, expected by Borrell Associates to rise to $14.2 billion in the U.S. in 2010 from $2.1 billion in 2004. The investment helps Yelp remain independent while bulking up abroad and trying to fetch a higher valuation later.
"The funds are going to be put to use in expansion," Yelp Chief Executive Jeremy Stoppelman says in an interview. "We're looking internationally. You're going to see Yelp in more cities, more languages."
Elevation Partners, the largest investor in smartphone maker Palm, discussed the investment in Yelp for several months. Google walked away from its negotiations in December. Yelp later received an offer from a second company, two people familiar with the matter have said.
Once they had the higher offer, Yelp management and investors reconsidered whether to sell, and the company chose to move ahead with the Elevation investment. "This company has a decade of growth ahead," says Mark Bodnick, a managing director at Elevation who is joining Yelp's board as part of the funding agreement. "Yelp has emerged as the leading U.S. local guide for user reviews. All of this content leadership is translating into audience and traffic." Yelp says it attracted more than 26 million unique visitors in December.
Previously, Yelp had raised $31 million in funding and was valued at $215 million after a $15 million investment by DAG Ventures in 2008, Stoppelman said in an interview last year. Bessemer Venture Partners and Benchmark Capital are also investors.
Yelp plans to use the most recent investment to add to its sales force, currently about 150. By yearend, Yelp may have as many as 350 sales staff, bringing its total workforce to more than 500, according to Stoppelman.
The site may also use funding to expand in mobile advertising, the çEO says. "We've had a lot of success in mobile, so we're going to continue staffing up there and investing in mobile platforms," he says. Google, Apple (AAPL), and Opera Software are among companies that have made mobile-advertising acquisitions in recent months.
Other companies have imitated Yelp's approach to local businesses online. YellowPages.com owner AT&T (T) launched a site called Buzz.com, which will let users survey family and friends when deciding on local businesses. Last year, InterActiveCorp (IACI) bought UrbanSpoon, the maker of a popular mobile application for finding and reviewing restaurants.