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Reviewing Elevation’s Yelp investment

Mar 02, 2012

How Elevation Partners fared with Yelp.

Online review site Yelp (yelp) went public earlier today, with shares rocketing more than 64% as of 2:20pm. The last time Yelp raised money was in January 2010, through a private investment from Elevation Partners. So, now that we have a third-party valuation, let's see how Elevation is making out.

Before beginning, let me stress that Elevation did not sell any shares in the IPO and is not allowed to sell any of its shares for at least the next three months. So this is a valuation of paper returns, rather than realized returns.

Elevation's investment had two parts:

  • First, it invested $24.2 million directly into Yelp, at $2.15 per share. That was considered the company's Series E round.
  • Second, it purchased nearly another $75 million from a variety of company insiders, including around 1.84 million shares from CEO Jeremy Stoppelman. Those shares were purchased at $8.136 per share. This purchase had an interesting quirk: If Elevation ultimately sells the shares for aggregate proceeds of more than 3x what it paid, then it "may be required to pay the selling shareholders additional consideration." No explanation is given for what triggers the "may" in that clause, or how much consideration could be due.

So, in aggregate, Elevation invested just south of $100 million. At Yelp's $15 per share IPO price, the position was worth just over $174 million. As of 2:20pm, the stake was valued at nearly $287 million. That latter figure is based on a $24.66 per share price, which happens to be about 20 cents per share more than where that extra "consideration" kicks in.

Pretty impressive. Not only for a deal that's just 25 months old, but for a firm that has been on the sidelines for more than a year because its investors declined to back a second fund.

But, again, this is just a paper calculation. We'll check back in three months from now, or whenever Elevation begins bleeding out its shares.


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