Yelp built its ad business by attracting users that know what they want, just not who to buy it from — exactly when ads are most effective. That’s why I find today’s VentureBeat piece by Rocky Agrawal titled “Yelp advertising is a rip-off for small advertisers” to be ridiculous. His sources say Yelp charges a $600 CPM, or 1,000-times the standard online CPM rate.

Yes, these ads are expensive, especially for low-end restaurants. But for lawyers, dentists, jewelers, and mechanics with a high lifetime average revenue per customer, turning someone searching for their services on Yelp into a loyal customer is no rip-off, it can drive big ROI.

Yelp sits at the end of the purchase funnel in the demand fulfillment stage. Users often already have a need for a business’ services and are prepared to spend. They go to Yelp to determine which service provider will get their money. When a user searches for “dentists in San Francisco”, Yelp local ads let advertisers put their own search result with a link to their Yelp profile at the top of the results.

For restaurants, a conversion could bring in $20 to $50 in revenue, and that customer will eat somewhere else tomorrow where they could get hooked. For a high CPM to provide ROI, restaurants need lots of customers to be swayed by their ads and turn into regulars. Yelp local ads might not work for them.

However, for more expensive financial, medical, automotive, real estate, travel, home, and professional services, these stakes are much higher. A single visit from a customer could earn an advertisers hundreds of dollars, their long-term business could be worth thousands, and they’re unlikely to switch if satisfied. If their local ads on Yelp net them just a few or even 1 new customer, they could earn significant long-term ROI.

Agrawal compares Yelp ads to Facebook ads, which doesn’t make sense because Facebook users aren’t actively looking for the service the advertiser is selling. He also says Yelp is overcharging advertisers. It’s only overcharging if the ads don’t produce results, not just because they’re priced much higher than less-targeted display ads.

If you want proof that Yelp provides value to advertisers, just look at Yelp’s S-1 filing to go public. It notes the massive growth and return-customer rate for its local ads business:

from the quarter ended December 31, 2010 to the quarter ended December 31, 2011, the number of active local business accounts increased by 109% from approximately 11,300 to 23,700. Of the approximately 23,700 total active local business accounts for the quarter ended December 31, 2011, approximately 15,800, or approximately 67%, were existing advertisers from which we recognized local advertising revenue in the immediately preceding 12-month period. (Page 56)

Yelp had a 67% return advertiser rate, and that would have been much higher if it hadn’t DOUBLED its local advertiser count in that year. If Yelp ads are such a rip-off, why are advertisers coming back for more? Yelp can’t say because it’s in its pre-IPO quiet period. It shouldn’t need to, though. It charges justifiably high CPMs, and is going to IPO, because its ads appear at the perfect time. And they work.

I’ve heard like a billion people complain about this recently so here goes: When you’re starving you don’t want to read through thousands of Yelp reviews on your phone or download a random PDF from a terrible restaurant website that’s so slow-loading it’s indecipherable. You just want to know where a restaurant is, what it has to eat, and whether or not it’s open.

‘Menu and Hours’, a Kickstarter project, is an app designed just to give you just the menu, hours, contact info and location of local eateries — the antidote to unnavigable mobile restaurant sites and TMI foodie services like Urbanspoon. Brilliant, right?

“The general idea is that when you’re looking for information about restaurants on your iPhone chances are pretty good you’re looking for the menu, the restaurant’s hours and contact info. That’s it,” says creator Michelle Jones, “You don’t want PDFs, you don’t want to get an icon telling you the site is broken for you because it was built-in Flash, you don’t want to have to click-through ‘splash pages’ just to get the basic information. Even though you might not want those things, they are exactly what most restaurant websites are going to give you.”

It’s true, people really hate restaurant websites.

Jones tells me that if she raises the initial $6K in Kickstarter funding, she’s going to start the first version of the app in her hometown of Louisville (it’s pronounced real awesome in that video above), but if it takes off wants to expand it to Atlanta, New Orleans, Los Angeles, San Francisco, and Minneapolis. “All of those are great food cities and I already have supporters for the project in those cities,” Jones says.

Paris and New York would be good too. Heads up!

Local recommendation site Yelp has finally filed an S-1 to IPO, wanting to raise $100 million. While there is no price per share or valuation designated on the form, reports have held the desired valuation at between $1 billion to $2 billion.

The site generated $58.4 million net revenue in the first nine months of 2011, 80% growth over the same period in 2010. It operated at a net loss however, of $7.6 million. Revenues have grown pretty fast, from $12.1 million in 2008 to $47.7 million in 2010 but as you’ll probably get sick of hearing over the next couple of weeks, it is still not profitable.

The Yelp S-1 boasts 22 million Yelp reviews, up 66% from the prior year, and 529,000 locations represented on the site — up 114% from 2010.

Founded in 2004, Yelp has $56 million in funding from Max Levchin, Bessemer Venture Partners, Benchmark Capital, DAG Ventures and Elevation Partners. The IPO, which will be underwritten by Goldman Sachs, Citigroup and Jefferies, has been long in co-founder Jeremy Stoppelman’s sights — at least since Yelp walked away from a $550 million Google deal in 2009.

Yelp and Groupon are both being sued by a company called Mobile Commerce Framework, an obscure patent troll that earlier filed a similar patent infringement suit against Foursquare.

On April 6, 2010, Mobile Commerce Framework (MCF) was issued US Patent No. 7,693,752 by the USPTO, for reasons unknown to mankind. In summary, this patent describes:

a subscription-based system for providing commerce information for one or more mobile devices for one or more merchants. Some techniques employed feature a subscription-based method for presenting commercial resources to a mobile device.

The method involves receiving mobile device user information relating to a geographic location to locate one or more merchants within a subscription-based shopping network, and receiving mobile device user information relating to a merchant type within the subscription-based shopping network.

According to MCF, Yelp and Groupon – and Foursquare – infringe its patent by creating and distributing mobile apps that can be used by people to obtain information and offers from merchants by searching, based on their physical location and merchant type. Sigh.

Mobile Commerce Framework is represented by Jonathan Hangartner, owner of X-Patents.

Related: Groupon Sues Fellow Group Buying Site MobGob Over 9-Year-Old Patent

Last year, several lawsuits emerged that accused Yelp of extorting businesses to advertise in exchange for positive reviews. Yelp has just announced that a judge granted Yelp’s request to dismiss these suits.

For background, the lawsuits claimed that after declining a request to purchase advertising on Yelp, a number of positive reviews from businesses’ listings on the reviews site mysteriously disappeared, downgrading the company’s rating on the site.

In February of 2010, two law firms, Beck & Lee from Miami and The Weston Firm in San Diego, filed a class action lawsuit in Los Angeles federal court alleging unfair business practices by Yelp. And in 2009, the East Bay Express ran a story basically accusing Yelp of being in the ‘Business of Extortion 2.0′, which covered similar ground. Shortly after reporter Kathleen Richards published the article, Yelp vehemently denied everything and called her piece inaccurate.  A number of similar copy cat suits also emerged.

As CEO and founder Jeremy Stoppelman writes “our automated system applies the same objective criteria to all reviews regardless of a business’s advertiser status. (Just check a Yelp advertiser’s business page — I bet they have a negative review or two; after all, you just can’t please everyone all the time.)

Last year, Yelp made some adjustments to its review process. For example, Yelp removed a feature that allowed businesses that advertised with Yelp to place their favorite review above others. It also let users see reviews that have been removed by its (automated) “review filter,” which is designed to help prevent business owners from posting all too positive reviews of their own company or malicious reviews of competitors.

Yelp also established a Small Business Advisory Council’ whose members have provided the company’s management with “guidance and perspective regarding the concerns of small business owners”.

Stoppelman admits that there are flaws to the system, writing, Additionally, since protecting content integrity is a difficult task, our automated algorithm isn’t perfect: sometimes legitimate content can get caught. This is an unfortunate reality in an environment where some folks are determined to try to game the system, but it is a price we are willing to pay to protect consumers and remain a useful resource.

The dismissal of the lawsuits means that the plaintiffs can’t sue Yelp again. It’s surely a relief to have these allegations dismissed. Now Yelp can go back to focusing on its potential IPO in 2012.

This afternoon the Senate Judiciary Committee held a series of hearings investigating whether Google may be violating Antitrust law. During the first panel of the day, Google Chairman (and former longtime CEO) Eric Schmidt took the hot seat to answer questions focusing largely on the fairness of Google search results, and whether they unfairly favor Google products (you can find our full post on that hearing right here).

During the second hearing, which just ended, a handful of Google critics and competitors made their cases as to how Google has been anticompetitive. One of these critics was Yelp CEO Jeremy Stoppelman, who released a statement last night (embedded below) outlining why he believes Google has abused its market dominance in search. And he provided additional details about Yelp’s relationship  with Google during a series of questions from the participating Senators.

One of the themes throughout Stoppelman’s testimony was Google’s mandate that if Yelp wanted its review snippets removed from Google’s Place pages, then Google would remove it entirely from its search results as well. This, Stoppelman says, is a false choice, because nobody can afford not to appear in Google search.

Asked how much of an impact being removed from Google would have on Yelp, Stoppelman replied, “about 75% of Yelp’s traffic, overall, is sourced through Google one way or another. About 50% is traffic coming from people who start their search on Google and eventually find their way to Yelp; the other 25% is people qualifying ‘Yelp’ as one of the keywords in their search… If we were not in Google it would be completely devastating.”

(note that this quote was transcribed live, so may be slightly off)

Stoppelman also pointed out the timing of Google’s integration of Yelp reviews into its Place pages, which he says were added immediately after Google’s reported offer to acquire Yelp fell through — and that they were only removed once government inquiries were looming.

Susan A. Creighton, an attorney at Wilson Sonsini Goodrich & Rosati who was defending Google, briefly challenged Stoppelman’s assertions while responding to a question regarding whether Google scrapes data from other sites. Creighton described search text snippets, explaining that consumers like having a line or two of text associated with search results. She says that Stoppelman is complaining about these, and that he’s “talking about micro-managing whether or not Google shows those results”.

Also included on this panel were Nextag CEO Jeff Katz and Thomas O. Barnett (partner at Covington & Burling, and former Assistant Attorney General for Antitrust). It’s worth nothing that Creighton was formerly the Competition Director of the FTC. We’ll post video of both panels shortly.

Chris Dixon begins this episode of Founder Stories with DoubleClick and FindTheBest Co-founder Kevin O’Conner by telling O’Connor that “DoubleClick is probably the closest thing New York has to a PayPal.” Meaning the two companies share an aptitude for hiring employees that go on to start innovative businesses.  Just as Paypal spawned Yelp, YouTube, and LinkedIn, DoubleClick spawned dozens of startups in New York City like Right Media.

With this in mind, Dixon asks O’Connor if he intentionally created an environment that encouraged innovation while at DoubleClick, before going on to ask O’Connor what he considers to be the defining characteristics of successful entrepreneurs.

O’Connor describes his systemized way of spurring innovation.  He lists a few signs of a successful entrepreneur.  A desire for control and the ability to challenge authority are near top of the list. A way to detect the second trait? “Have you told your boss to shove it?”

In the video below, O’Connor discusses his genesis of his latest startup, FindTheBest, a service that offers side-by-side comparisons of everything from cigars to business schools. At the intersection of trying to solve a “big obvious” idea and not finding a site that served his needs, O’Connor began to build what would become the company. He describes it as a “decision engine” to help you make complicated decisions where search falls flat. What dog should I buy? Where should I send my kid to summer camp? What investment adviser should I hire?

Make sure to watch both videos for additional insights along with the first two installments of this interview (Part I and Part II), as well as past episodes of Founder Stories here.

“I have a competition in me. I want no one else to succeed.”

I’m reminded of Daniel Plainview’s admission in There Will Be Blood when thinking about Google.

While the company is still largely beloved by the public, sentiment seems to have turned against them amongst their peers, and even amongst many of the startups around Silicon Valley. While these tensions have been building for months — and even years, in some cases — we’re seeing this on display more clearly than ever now thanks to the patent issue(s).

But why? Why is Google now a villain to many in the industry? I don’t believe it’s because they’re evil, I believe it simply relates to the Plainview quote. Increasingly, Google is trying to do everything. And they have the arrogance to think that they can. And it’s pissing people off.

“Microsoft and Apple have always been at each other’s throats, so when they get into bed together you have to start wondering what’s going on,” Google Chief Legal Officer, David Drummond, wrote this week when accusing those two companies of trying to destroy Android. And he’s right. After decade of being bitter rivals, Apple and Microsoft now seem to have aligned interests. But you don’t have to wonder what’s going on, it’s very apparent: they both hate Google.

The two recently teamed up to screw Google out of the Nortel patents, spending billions to make that happen. And before that, they attempted to do the same with the Novell patents (though the DoJ blunted some of that attack). Next up for the dynamic duo: the InterDigital patents. Apple is definitely exploring acquiring them, and don’t be surprised if Microsoft is right there to help once again, to ensure Google doesn’t get them.

All of this is even more interesting when you consider that it was once Apple and Google who were closely aligned. And it was a common vision that brought them together as well — appropriately, the end of the Microsoft-dominated computing world.

The two got so close, that Google then-CEO Eric Schmidt even joined Apple’s board of directors. And Google was instrumental in helping create some of the early applications for the iPhone (Maps, YouTube, etc). It seemed like the two would team up to take down the carriers next.

Then things got very complicated when it became clear that Android and the iPhone would soon become very direct competitors. The rest has been history.

But while Apple and Microsoft have been the two highest profile Google combatants in recent months, they’re far from the only ones.

At least just as big of a Google antagonist (and perhaps even more so) is Oracle. While the Apple and Microsoft lawsuits against Android threaten to disrupt the platform and/or make it more expensive, Oracle’s lawsuit threatens to destroy it. Oracle is suing Google over the unlicensed use of Java in Android — its core.

If one of two damning emails are allowed to be used as evidence, it sure looks like Google could be in some serious trouble. Those emails appear to extend the idea of Google’s arrogance. As Android chief Andy Rubin wrote in a 2005 email, “If Sun doesn’t want to work with us, we have two options: 1) Abandon our work and adopt MSFT CLR VM and C# language – or – 2) Do Java anyway and defend our decision, perhaps making enemies along the way.”

They obviously chose the latter. And while Sun is no more, Oracle now controls the rights to Java. A very big enemy has been made along the way.

The list continues from there.

Facebook and Google have long been at odds with one another. Now, with Google+ giving Google a significant presence in Facebook’s social game for the first time, tensions are higher than they’ve ever been. While the two sides have been fighting publicly, behind the scenes, it’s worse. This is true even though many of Facebook’s employees are former Google employees. Facebook’s alliances with Microsoft can’t help matters either.

For a long time, Yahoo was Google’s most direct rival. You might think that after Google quickly dominated them in search, there would be peace now. Nope. Yahoo also has no love for Google still to this day. When Microsoft was attempting to buy Yahoo a few years ago, Google was seen as one potential savior. And they almost were, until the DoJ began looking into a potential Yahoo/Google search partnership and Google had to back out. Instead, Yahoo was forced to tie up with Microsoft.

These days, you’ll hear Yahoos complain behind the scenes that Google often just takes ideas they implemented first but never caught on because Google is the dominant player in the space.

Amazon and Google are also increasingly at odds with one another. Amazon is about to enter the tablet space in a big way later this year — and they’ll be doing so with their own flavor of Android. They also have a competing Android app store. And while this may seem like Amazon entering Google’s space, remember that Google went after Amazon first. While Google hasn’t really be able to compete in the cloud storage and services businesses so far, it hasn’t been for a lack of trying.

Out of any of the larger entities in the space these days, is seems like Twitter and Google should have interests that align the most. Like Facebook, many of Twitter’s employees are ex-Google. And while a search deal a couple years ago seemed to pull the two close together, that deal has since expired, and there is no sign it’s going to ever be renewed.

Google has tried to buy Twitter a few times, and Twitter has backed away each time, most recently leaving billions on the table. And while both sides say fairly complimentary things about each other in public still, behind the scenes, again, it’s not good. Many Twitter employees flat out don’t trust Google. And Google+ has exacerbated that situation.

Speaking of failed Google acquisitions, after Google tried and failed to buy Yelp and Groupon, they moved forward on products that competed directly with them. In the process, Yelp has felt Google was actively screwing them in search results. Bad blood galore now.

On the smaller startup side of things, both Color and Path turned down massive acquisition offers from Google. Part of it was because the startups wanted to remain independent, but a large part was also that neither groups of employees wanted to work for Google. Naturally, Google has since been working on products that compete with both — not only Google+, but also mobile apps created through Google’s Slide division.

The list goes on and on. At this point, it would be easier to list tech companies that are completely friendly with Google — because there aren’t many. Again, most won’t speak out publicly about this — partially because Google is still one of the largest acquirers out there and not everyone is Twitter, Color, Path, Groupon, or Yelp, that will turn down hundreds of millions or billions — but if you talk to individuals that work at other companies, it becomes very clear very quickly that there is not a lot of love for Google out there anymore.

In my view, this stems from Google’s desire to do everything — which could threaten the company for other reasons. Once just a search company, they now actively compete with Apple, Microsoft, Oracle, Facebook, Amazon, Twitter, Yelp, Groupon, Color, Path — again, just to rattle off a few.

Obviously, it’s Google’s right to do what they think is best for the company. And certainly they have the money to take on all of these different projects. But the alienation of other companies — many of which were former allies — isn’t helping them. And if any of these Android lawsuits — bullshit or not — go through, or if they fail to eventually obtain the patents necessary to protect themselves, Google could find themselves in serious trouble. And if that happens, will anyone be around to lend them a hand?

At this point, I think there will be more companies waiting to kick them when they’re down.

Increasingly, this is the reality bubbling just under the surface: others in the space look at Google and see nothing worth liking. They see an enemy. As Plainview says to his own son at one point, “this makes you my… competitor.”

When it comes to local commerce, the ultimate prize everyone is going after right now is how to close the redemption loop. The redemption loop starts when a consumer sees an ad or an offer for a local merchant, and is completed when the consumer makes a purchase and that purchase can be tracked back to the offer. If you know who is actually redeeming offers and how much they are spending, you can be much smarter about tweaking and targeting those offers.

Groupon, LivingSocial, and other daily deal sites have created enormous value by pushing the redemption loop the furthest. When someone buys a daily deal, for instance, that translates into cash for the merchant. But for the vast majority of their deals Groupon and LivingSocial do not track whether or not they are ever redeemed, much less the amount each consumer actually spends at the store or restaurant once they show up.

In order to complete the circle and track offers all the way through redemptions, it is necessary to either tap into the payment system or create an alternative way to track redemptions. Different companies are tackling this problem in different ways, but they almost all rely on a shift from emailed coupons to offers delivered through mobile apps.

Next Jump CEO Charlie Kim, who recently partnered with LivingSocial to power daily deals across his commerce network, sees a shift in targeting from broadcasting deals to narrowcasting them. “Blasting out a deal to everyone in New York is not targeting,” he says. “When you broadcast too much in any category, it is just a lot of noise. Email response rates have plummeted for everyone across the industry. What used to be 10% response rates even a year ago, now you are talking the 1% to 2% level.” The constant barrage of emails from Groupon, LivingSocial, and every daily deal copycat is creating user fatigue that is visible in declining response rates.

And that is why mobile is so appealing. If you can send deal notifications to people’s phones based on their exact location and nearby deals, you have the beginnings of narrowcasting. Later on, companies will figure out how to layer on ways to target by income, gender, and other factors as well.

Mobile and local commerce go hand in hand. In a few cities, Groupon is testing out Groupon Now and LivingSocial is offering Instant Deals. In both cases, the deals appear on mobile apps and can be redeemed instantly, rather than having to wait a day for the deal to go live, as is the case with their regular daily deals. The downside of these deals is that Groupon and LivingSocial cannot take advantage of their existing deal inventory and they have to actually provision participating merchants with iPhones and iPads so that they can accept the deals and Groupon/LivingSocial can track them. Yelp is doing something similar where you have to show a redemption code to the merchant from your phone.

Foursquare and Facebook are taking a different approach through their separate partnerships with American Express. Since AmEx is the payment system, it records deal redemptions along with the actual payments. Merchants and consumers don’t have to do anything different from what they normally do. Pay with a credit card and your deal is redeemed. Except it only works if you have an AmEx card and the discount is credited to your account later.

Google is trying to link Google Offers to its Google Wallet, which requires an NFC chip in your phone and an NFC reader at the merchant’s checkout. It has the advantage of working with MasterCard, Citi, and other large payment processors. But it also depends on a brand new technology that will take a long time to become widely available.

The key to closing the redemption loop is definitely payments. Investor Chris Sacca recently told Kevin Rose in a video interview the best reason why Twitter should buy Square is because Twitter has the broadest reach to distribute offers and deals, and Square has a built-in way to track redemption. This was just an off the cuff remark in a friendly chat (Twitter isn’t even in this business yet), but it makes sense.

We are moving from a world of online ads that produce impressions and clicks to online and mobile offers that produce real sales. If the deal companies can figure out a way to actually measure those sales, it could open up local commerce in a massive way that makes what they’ve done so far look like child’s play.

If you talk to Yelp CEO Jeremy Stoppelman, he always likes to point out how many reviews there are on Yelp. It’s a point of pride and competitive differentiation. Even Google Places, which borrows liberally from Yelp reviews, seems to think so.

Today, Yelp crossed 20 million reviews, up from 10 million in March, 2010 (and 17 million last April). The reviews bring in the visitors, and visitor growth tracks pretty closely with the growth in reviews. Yelp hit 53 million visitors in June, according to its own stats.

It took about 6 years for Yelp to get to 20 million reviews. Yelp was founded in 2004, and it took two and a half years to get to its first million reviews (in May, 2007). Then it took roughly another three years to get to 10 million (March, 2010), and then added this last 10 million in a year and a quarter.

Yelp focusses so much on reviews, and trying to get quality user reviews, because everything else can be replicated. With so many places databases popping up, creating a directory of local businesses is easier than ever, but Yelp has always been about the user reviews as a sorting mechanism to find the best places nearby.

Stoppelman is so protective of Yelp’s reviews that he still won’t allow mobile users to upload reviews from their phones because he wants them to be well thought-out. (You can add tips, however, from mobile). They also tend to be lengthier than what you’d get from mobile reviews. At 2.2 billion words overall, that comes to an average of 110 words per review. If he loosened up on that restriction, Yelp could have 50 million reviews in no time.

Foursquare this morning announced distribution partnerships with daily deal providers LivingSocial, Gilt City, zozi, BuyWithMe and AT&T. Missing from the list are Groupon, Yelp and Google Offers.

With these deals, Foursquare is attempting to solve two problems: liquidity in deals and its own lack of a revenue model.

Foursquare already has a reasonable number of deals on its own. How many, exactly, it refuses to say. But I even found one during a stopover in Ketchikan, Alaska. I couldn’t get a 3G signal, but I could get a Foursquare deal.

Foursquare will now distribute the deals to its users on behalf of its partners. At this stage of the mobile deals market, it helps all of the players out there to work together. None of these companies have all of the pieces of the puzzle: Foursquare has distribution, but no local salesforce. LivingSocial and the others have salesforces and some deals but no meaningful mobile distribution.

Without cooperation, you run into the Color problem—you check to see what’s there, see nothing, check again, see nothing and then stop checking. A single purpose deals app will get old quickly. Deals need to be shown where people already are for other reasons.

Foursquare is one of those outlets. The company won’t disclose how many monthly unique users it has, but I would estimate it at 2-3 million, based on typical Internet decay rates of registered users and its recent milestone of 10 million registered users.

However, I see three key challenges with Foursquare deals:

1. Confusion among the various deal types. Foursquare deals already come in many flavors: mayor, newbie, swarm, flash, check in, loyalty and friends. These deals are all processed by the business at point of sale. There are also deals in conjunction with Foursquare’s partnership with American Express at H&M, Sports Authority and Dunkin’ Donuts. With these deals, you pay full price and receive a credit on your credit card statement after the fact. With deal providers like LivingSocial, you have to pay in advance and then redeem the offer. In some cases, you won’t be able to redeem the offer right away—you will have to wait for the deal to close just as daily deals do. For the initial launch, there is no Foursquare wallet. If you buy a deal from LivingSocial one day and enter all your information, you’ll have to repeat the process if you later buy a deal from zozi.
2. Competition with itself. This is a rare case where the company actually makes more money if you use competing products than if you use its products. Foursquare’s excellent deal and loyalty products are free to merchants. The daily deal providers charge merchants and then give a revenue share to Foursquare. (The company does not disclose how much.) For merchants, the best value is to use Foursquare’s in-house products.
3. Competition with the big guys. Because of massive fragmentation, local is very dependent on a large user base. Foursquare’s scale is tiny compared with Google and Facebook mobile app users. Google claims more than 200 million users across its mobile local properties. Facebook has even more mobile users. Google and Facebook could distribute deals for the deal providers just as they do ads online.

There is also competition between Foursquare and its partners. Tomorrow, LivingSocial is offering $1 lunches at more than 100 places in San Francisco to promote the launch of LivingSocial Instant. I asked LivingSocial if those deals will be available through the Foursquare app.

“Tomorrow’s dollar lunch will only be available thru the LivingSocial apps or the LivingSocial website,” replied spokeswoman Maire Griffin.

In other words, LivingSocial would like you to install their app.

It has been over three months since we first broke the news on the existence of Disco, the group messaging app made by the Slide team within Google. Google still refuses to talk about it. But work continues nonetheless. Today brings version 3 of the app — and the app is starting to get really good.

Just a little over a month after Disco was updated to version 2.0 with Push Notifications, today’s update brings a range of key new features. The biggest one is photo sharing, a feature which is now a must-have for all group messaging apps. Also new is 1-to-1 chat capabilities. But the most important additions may be the things Slide/Google is trying to do to help differentiate Disco from the rest of the pack. Namely, they’ve baked in Twitter and Yelp integration.

Yes, it may seem a bit weird for an app built within Google to rely on two rivals, but the features are interesting. Using the new “Star” commands, you can choose to follow any Twitter feed within a Disco group and see all the updates from that account within the app. You can also call up Yelp recommendations and reviews right from within the app with the new feature. Finally, you can also create a poll for everyone in the group using the Star options.

Disco also comes with a nice little bonus. If friends are not yet using Disco, you can still interact with them via SMS within the app. And the app will allow you to do this with up to five friends absolutely free of charge (though I assume they can still get charged for receiving the text).

While Google still won’t talk about Disco, perhaps it is ideal to just let that team do their own thing. Clearly, they are iterating fast minus all the oversight they might normally get as a regular group within Google. In just a few months, the Slide team has brought Disco from yet another group messaging client, into a really good one.

At the same time, the team is also working on other apps, like Pool Party, a group picture sharing app. I’ve been playing around with that for the past week, and it’s also pretty solid. If the slide team combined the two, it could be really interesting.

Of course, I’m also still interested to see how these Slide apps do in the face of Google+, which offers much of the same basic functionality. Google+ for Android has been out for over a week now, and it includes the Huddle group-messaging app. The G+ iPhone app remains in review, but should be out shortly — my guess would be next week.

You can find Disco in the App Store here or in the Android Market here.

LINKEDIN (NYSE:LNKD)

Professional social network LinkedIn probably had the biggest IPO in terms of hype this year because it was one of the first big social media companies to go public. After pricing its IPO at $45 per share on the New York Stock Exchange, LinkedIn began trading at $83.00 per share on May 19, giving the company a $7.8 billion market cap. In the first day of trading, shares popped up to as high as $122.70, soaring past a $10 billion valuation.

But these high stock prices didn’t sustain and LinkedIn’s value per share dropped significantly over the next month, dropping as low as $63.71 per share. However, the company’s stock rebounded last week, with shares rising as high as $95.50 on Friday, eventually closing at $94.54. That’s a 110 percent increase from its initial pricing.

PANDORA (NYSE:P)

Similar to LinkedIn, music streaming service Pandora also drew considerable attention to its IPO, which debuted on the New York Stock Exchange under the desirable, single character symbol ‘P.’ The company priced its IPO at $16 per share (valuing the company at $2.6 billion), but opened at $20 per share on June 15 (up 25 percent), valuing the company at $3.2 billion.

In the two weeks following the IPO, Pandora’s stock took a bit of a dive, reaching as low as $12.16 per share. But like LinkedIn, Pandora’s shares saw an uptick over the past week, closing at $20.04 on Friday, which is up 25 percent from the company’s initial pricing in June.

YANDEX (NASDAQ:YNDX)

Russian search engine Yandex, which began trading on the NASDAQ on May 24, priced its IPO at $25 per share, but opened at $35, giving Yandex a market cap of roughly $11.2 billion. That’s a bigger market cap than both LinkedIn and Pandora.

Yandex has experienced highs and lows in the past month with the value of its stock, but the fluctuations have not been nearly as extreme as some of its contemporaries in the tech IPO market. Yandex’s stock dipped to a low of $29.73 in mid-June but rebounded quickly and closed on Friday at $35.69, which is a 40 percent increase from its initial pricing.

FUSION-IO (NYSE:FIO)

Fusion-io, the developer of flash- memory technology for companies, debuted on the New York Stock Exchange on June 9. The company priced its IPO at $19 per share, valuing Fusion-io at $1.5 billion, but opened at $25 per share, giving the company a nearly $2 billion market cap.

Fusion-io’s stock has performed fairly well over the past month, reaching a high of $36.32 last week. The company’s shares closed at $31.19 on Friday, up 64 percent from its initial pricing.

HOMEAWAY (NASDAQ:AWAY)

Vacation home rental service HomeAway debuted its IPO last week, pricing at $27 per share. HomeAway, which listed on the NASDAQ, saw its shares pop over 30 percent in initial trading last Wednesday, giving the rental service as valuation of $3 billion.

HomeAway’s shares have maintained its value, relatively speaking, in its first week of trading, reaching a low of $34.92 and a high of $42.30. On Friday, HomeAway’s shares closed at $38.42, a 42 percent increase from the stock’s pricing.

RENREN (NYSE:RENN)

Chinese social network Renren actually went public before LinkedIn, pricing its IPO in early May at $14 per share, with a total offering size of $743.4 million. The company was pitching itself as a “Facebook” like site for the Chinese market, which resulted in an increase in the share price range from the initial $9-$11 to $12-$14. That increase resulted in a boost in the deal size to $743.4 million from the original price of $584 million.

RenRen opened at $18 per share, but the stock has since plummeted to as low as $6.23 per share. On Friday, RenRen closed at $9.25 per share, which is a 34 percent drop in value from the initial pricing.

BANKRATE (NYSE:RATE)

Bankrate provides free rate information to consumers on more than 300 financial products, including mortgages, credit cards, new and used automobile loans, and more. The company priced its IPO at $15 per share, valuing the company at $1.5 billion. The company’s shares, which began trading in mid-June, have remained fairly steady at this price, reaching a high of $17.89. Bankrate closed at $17.13 per share on Friday, up 13 percent.

Who’s Next Up To IPO

Zillow: Real estate listings giant Zillow filed its S-1 in April, so we could be seeing the company hit the public markets in the next two months. Zillow wants to raise $51.75 million in the offering, and while revenue has grown for the company year over year, Zillow has taked a loss for the past three years. Zillow will trade on the NASDAQ under the symbol “Z.”

Kayak: Travel search engine Kayak filed its S-1 last November, aiming to raise $50 million. No word on when the search engine is planning to IPO, but Kayak did reveal revenue growth in the past year, however net income is down. The company will trade on the NASDAQ under the symbol “KYAK.”

Groupon: Daily deals giant Groupon just filed its S-1 in June, aiming to raise $750 million in the public offering. Though the company has an impressive revenue run rate of $2.6 billion for 2011, but has drawn criticism for a lack of profits and the fact that the founders have taken a significant amount of money off the table. The company is looking at an IPO in the Fall.

Zynga: Zynga just filed for its $1 billion IPO this past Friday, revealing impressive financials. Revenues grew 392 percent in 2010, up from $121.5 million in 2009. In the first quarter of 2011 alone, the company’s revenues reached $235 million (or a $940 million revenue run-rate), which is up 134 percent from the first quarter of 2010. Both Zynga and Groupon may be rushing to IPO ahead of Facebook, which is expected to file in the coming year.

Not Yet Filed, But Champing At The Bit:

Facebook: We know an IPO is in the works for Facebook, it’s just a matter of when. The company has been meeting with bankers to discuss IPO size and time frame for an offering. And the company just added Netflix founder and CEO (and an IPO veteran) Reed Hastings to its board. It’s been thought that the social network will go public by April 2012, but it could happen before this date.

Glam Media: We’ve heard Glam Media, one of the largest publishing and advertising networks on the Web, is planning to file for an IPO as early as this Fall. The company has hit $100 million in annual revenue, reaches 90 million people a month in the U.S., and is in the process of hiring bankers to lead its offering.

Yelp: Online reviews and daily deals giant Yelp has its sights set on an IPO, but the timeline is unclear. Yelp is now at 50 million unique visitors per month, mostly in the U.S., and has raised $56 million in funding.

Disclosure: My husband is an employee of Groupon.

The next phase of growth for local deals will be mobile.  Groupon knows this, and so does Yelp, which today is rolling out Yelp Deals to its iPhone and Android apps.  An update to its mobile apps that is getting pushed out today will add a new deals icon to the app.  When you click on it you can see a list of nearby Yelp Deals for discounts at restaurants, spas, and other businesses.  (These are in addition to Yelp Special Offers and Check-In Offers, which already appear on mobile).

Yelp started offering daily deals at local merchants about a year ago, and it now has deals in over a dozen metro areas, including San Francisco, New York, Chicago, Boston, LA, Phoenix, Seattle, and San Diego. You have to sign up for these deals currently and you get an email when there are new deals, just like with Groupon or LivingSocial.

With Yelp Deals on mobile, you can search for nearby deals when you are walking around, and they are instantly redeemable.  You get a redemption code that you can show the merchant right from your mobile phone.  This is similar to what Groupon is trying to do with its Groupon Now mobile app, which is only available in a handful of cities (fewer than Yelp Mobile has out of the gate).

Yelp has one big advantage here over Groupon.  It’s mobile apps are already very popular.  They are used by 4.5 million people a month.  Meanwhile, Groupon is trying to spread Groupon Now through deals with other mobile apps, such as Loopt.  Yelp also has a large local sales force, much like Groupon, which is the key to getting local merchants to sign up for these deals.

The key is to get liquidity on both sides of the equation: users and deals.  Yelp already has the users on mobile.  But getting the deals will require a slower roll-out and a lot of phone calls. That is why Yelp Deals are only available in a dozen metro areas, and it’s taken a year to get there.  And the deals come out once or twice a week, not every day.  With mobile, there is the extra challenge of getting enough deals in dense geographic areas so that the likelihood of seeing a nearby deal when you launch the app is high.

You just need a lot more deals than you do through the current email marketing model, which gives people more time to plan their tris so that they can take advantage of a deal.  The mobile model is more impulsive, but it also requires a greater density of deals for it to work.

This is going to be a long race.  Yelp and Groupon are among the first to get off the starting line.

Google Places is at it again, brazenly borrowing reviews from Yelp. But this time it’s in their iPhone app and they are not even bothering to link back to Yelp or attribute where they are getting the reviews. Yelp and Google have a love-hate relationship. Yelp loves when its listings and reviews show up in natural search results, but they hate it when Google scrapes their reviews to populate its own local listings in Google Places.

This tension between the two has been playing out for a long time with various ups and downs. It’s become a running joke. But Google appears to be pushing the boundaries of what is acceptable once again with its mobile app.

Here is what appears to be going on based on a handful of spot checks in the Google Places iPhone app. For many places such as restaurants, Google Places offers “Reviews from around the Web” in its iPhone app just like it does online. The difference is that the reviews from Yelp are no longer identified as such and there are no links either. For example, if you look up Le Colonial restaurant in New York City, the top “Reviews from around the Web” are two Yelp reviews properly identified with links In the mobile app, there is no attribution or links (see screenshot at right). Yet there are links and attribution for reviews from other sites such as Citysearch.

Try the same search with “Hayes Market” in San Francisco, and you see the same thing. The two top reviews come from Yelp:

Every time I go there is a strong weed smell coming from the back and a bunch of guys hanging around the front door and sometimes playing cards or dominos inside. . . .

The staff here are really nice, I have never brought home anything expired (unlike “Whole Foods” in the Lower Haight), and they take food stamps!

These do not appear to be isolated incidents. Does Google Places really need to stoop to that level?

Here are two more screenshots that show the pilfering. And note that reviews from other sources in the iPhone app link back to those sites, whether it’s Citysearch, Opentable, or Zagat. What’s so special about Yelp that they get treated differently?

Update: Apparently the issue is also happening with other sources of reviews and local data such as TripAdvisor. Google says it is a mistake and it is fixing it. A Google spokesperson provided the following statement:

“We’re aware of a technical issue in which the link to the domain of the review page is sometimes not appearing in results for Google Places when accessed via the iPhone app. Our team is working to resolve the matter to ensure that users can identify the source of the result.”

Yelp’s international sites have been growing like crazy, with non-U.S. traffic doubling in the past year. Today, it is adding a fifth non-English international site, Spain, to its roster. (The other international Yelp sites are in France, Germany, Austria, and the Netherlands).

Yelp is now at 50 million unique visitors per month, mostly in the U.S., according to its internal stats. ComScore shows 87 percent growth in non-U.S. unique visitors over the past year (Yelp’s internal stats show more than 100 percent growth).

Yelp is also seing growth along some other dimensions: reviews and mobile. Yelp now hosts 18 million customer reviews, with 2 million written in the first quarter alone and another million last month. Yelp’s reviews—both their number and quality—are one of the key pieces of content that differentiates it from other local sites.

Mobile is also growing at a nice clip. Yelp had 4 million mobile users in April, which is more than double where it was about year ago. Yelp’s iPhone and Android apps will be available in Spanish now as well.

David Chiu, the President of the Board of Supervisors and co-sponsor of the legislation, said in a statement, “Today’s vote is a vote to keep jobs in San Francisco. This policy is a crucial positive step in the ongoing effort to revitalize the Central Market and Tenderloin neighborhoods. Twitter’s commitment to move to this challenged stretch of Market Street and stay in San Francisco shows that we are not content to simply become a bedroom community for Silicon Valley. The companies that are born here should grow here. Finally, I support the efforts of community members to craft community benefit agreements with Twitter and other companies that avail themselves of this payroll tax exclusion. I look forward to the final passage of this legislation next week.”

No official word yet from Twitter on whether this satisfies its issues with the city’s tax laws. It doesn’t come close to solving the broader issues with San Francisco’s payroll tax, but it is certainly a big step in the right direction to keep tech jobs in San Francisco. Said Supervisor Scott Wiener as he voted yes: “We in City Hall do a lot of talking about keeping jobs in San Francisco. Now we have an opportunity to actually take action.”

Expect the pressure to continue on supervisors to solve the problem broadly, which would eliminate the need for these company-by-company negotiations with the city in the future. There are already several other proposals on the table including Supervisor Ross Mirkarimi’s legislation to exempt all San Francisco companies from paying payroll tax on stock options for two years, Supervisor Mark Farrell’s plan for a permanent way to take stock options out of the payroll tax completely, and Supervisor David Chiu’s broader efforts to get rid of the payroll tax entirely. As the San Francisco Planning and Urban Research Association noted today, we may need all of those to solve the broader problem for the next generation of Twitters, Zyngas and Yelps. As Supervisor Farrell said during the vote, “It is no secret that we all seem to realize that our payroll tax system is broken.”

It may take years to get some of these problems solved, and we’ll see if the Board of Supervisors stays as committed without a headline-grabbing impending departure of a big name. Likewise some of the resolve could soften as Supervisors approach 2012 elections– union groups are among many who see this as nothing more than a wasteful corporate giveaway. Either way, we’re going to stay on the story.

San Francisco City Supervisors are meeting today to vote on whether companies like Twitter moving into the city’s blighted Tenderloin neighborhood will get a generous enough tax break to keep them from leaving the city. It’s an important vote for all of Twitter’s employees, as it will probably dictate whether they start commuting to Brisbane or not. And it’s an important vote for Zynga, Yelp and other large startups who are having similar conversations with the city.

But the vote is also an important first step for any entrepreneur thinking of opening a high-growth company in San Francisco– ever.

As a refresher, the problem here isn’t whether startups should be immune from paying city taxes. Many of them– like TechCrunch– are happy to pay taxes to San Francisco. The problem is the way San Francisco taxes companies, using a payroll tax that no other city in the state uses. That’s for good reason: It disincentives startups to get big and hire more people. And, as we first reported in February, San Francisco may be the only city in the United States that can legally extend this payroll tax to stock options.

This is more than a mere “disincentive” for pre-IPO companies to stay in San Francisco; it means they can’t stay and uphold their fiduciary duties. Going public from San Francisco could cost companies like Twitter, Zynga and Yelp as much as half of the IPO proceeds in taxes. Again, it’s a tax the Federal government doesn’t levy on startups, and one that no other city in the United States levies– particularly those smaller cities that are just a few miles from Twitter’s current headquarters.

Still, there’s a lot of groups in the city lobbying against any change in taxes, confusing the issue with “corporate welfare.” I’ve read through some of the materials they are sending out, and while a lot of this is politics, there seems to be a lot of genuine confusion between the nature of the way big companies, small businesses and startups work.

One landed in my inbox from the Service Employees International Union yesterday. The union opens the letter saying a tax break of $20 million to one company is outrageous. I don’t necessarily disagree. And that is one reason why it’s so important that San Francisco change its payroll tax to a system more in line with what every other city in California uses. As long as such a geographically small city is so out-of-step with its neighbors, the bulk of high-growth companies– like Yahoo, Google and Facebook– will start in other areas of Silicon Valley, and those who do start in San Francisco and get huge will demand an exemption to stay. Because the laws are so outrageous compared to neighboring cities, the way to avoid this situation in the future is to change the tax permanently.

I’m not advocating letting companies off the hook for taxes: Just the levying of ones that make sense and don’t put the city at a huge competitive disadvantage. If this were the case today, Twitter would have no argument. The San Francisco Planning and Urban Research Association has an excellent editorial today that argues this point as well.

Meanwhile, here’s a point-by-point rebuttal of an email circulating on behalf of the 14,000 member SEIU to encourage rejection of today’s vote.

• Twitter and its executives don’t need a taxpayer handout to succeed. Twitter recently rejected a rumored $10 billion takeover offer. Twitter CEO Dick Costolo sold his last business, Feedburner, for $100 million.

Agreed. No one is arguing that Twitter is asking for a tax break out of financial hardship. Indeed, the reason we’re debating the point is because Twitter is so healthy. It’s Twitter’s ability to create thousands of jobs that makes the city so desperate to hang onto it. And it is Twitter’s likelihood of going public that means the company can’t afford to stay. If Twitter was a slow-growing, struggling company or mere-acquisition bait, none of this would be an issue.

As per the point of Costolo’s income, this is one of those cases where the SEIU is confusing a small business with a startup. If Twitter were, say, a chain of dry cleaners, 100% owned by Costolo, this would be a relevant point. But Twitter is a startup backed by investors who are in the company for one reason: To build a huge company and make a huge return. Twitter is viewed by these investors as a global company, not a San Francisco company. If San Francisco is going to thwart Twitter’s ability to invest capital in its growth, then Twitter will move. Plain and simple.

Costolo is essentially an employee of Twitter. His personal bank account doesn’t back Twitter anymore than mine keeps TechCrunch in business. It has nothing to do with the company’s strategic plans and is only included in these talking points to confuse the issue and to turn less well-off city residents against him.

Again: The debate has nothing to do with any Twitter or Costolo “bail out,” and that’s why the “corporate welfare” moniker is so misleading. It is a bid to keep high-paid jobs in the city.

• The impartial analysis from City Economist says tax breaks like the one offered to Twitter for locating in San Francisco aren’t necessary — they often go to companies that would have chosen to locate in the City anyway.

Here, the SEIU is confusing a high-growth startup with a large corporation. I grew up in the Southern United States where city governments would frequently offer huge tax breaks to get large manufacturing giants or even big box retailers like Wal-Mart to open stores and operations in their cities to create jobs. I totally agree that that’s usually a bad use of city funds. Especially in the case of big-box retailers, many studies have shown that they’ve been a mixed blessing, robbing employees and sales revenues from smaller mom-and-pop stores.

But again, that’s not what’s being discussed here. Twitter is already in San Francisco, for one thing, so arguing they might move here anyway makes little sense.

There’s another obvious distinction: A big company is not rapidly creating jobs and gearing up for an IPO. A startup is. Again, that’s the reason San Francisco wants to keep Twitter, and the very reason Twitter can not stay even if the management wanted to as long as the outrageous stock option tax is on the table.

• San Francisco’s competition for Twitter, the City of Brisbane, is tiny and has no other major technology companies.  It doesn’t even have a grocery store or a gas station. Many observers believe it is simply a “straw man” to leverage San Francisco into handing over a special payment to an already rich company.

This is just silly. In the history of Silicon Valley, most of the largest companies have been built in small peninsula towns, not in San Francisco. Brisbane is about eight miles from the proposed spot that Twitter would move into should today’s vote go the way the Mayor hopes. In most major US cities, that doesn’t even count as a commute. I don’t know how many grocery stores and gas stations are between the two, but I’d guess it’s plenty. Twitter doesn’t have to work hard to recruit employees to join it, nor does it need other big technology companies near by. A move to Brisbane means employees can’t bike to work or have as many lunch options in walking distance, but little else. This is not a painful quality-of-life sacrifice for the company.

No one who understands how startups work views this as a “straw man.” If they did, you wouldn’t have four different groups of supervisors rallying to fix the problem. Again this isn’t a small, lifestyle business, this is a startup on a mission to build a big company. It’s not an emotional debate, it’s a matter of which location is in Twitter’s best fiduciary interest. It’s not only not a “straw man”– it’s a no brainer that Twitter or any other startup in its situation will move a few miles away and save the tens of millions of dollars in taxes to invest in its business.

Why do you think the vast majority of large Silicon Valley names are located outside of San Francisco? There’s a pretty strong precedent that this is the way things have been done. Twitter, Zynga and Yelp have been the ones bucking the trend up until now.

• If this tax giveaway is approved, what’s to stop existing businesses like Wells Fargo, SalesForce.com and others from threatening to leave unless they get a special deal?

Simple: They are not fast-growing, pre-IPO companies. All proposed legislation is aimed at these kinds of companies specifically.

• Finally, there’s nothing in the proposed deal to stop Twitter from moving its employees out anyway after it receives the special break.

That’s true. But then it’s a moot point isn’t it? If employees aren’t here then the city isn’t giving up payroll revenue. It’s a break from paying a tax, not an actual check for $20 million the city is handing over. If Twitter moves employees, then theoretically the SEIU shouldn’t have an issue.

The SEIU urges its members to send complaints to the Jane Kim at Jane.Kim@sfgov.org or David Chui atDavid.Chiu@sfgov.org to reject the deal. If you work at one of these companies and want to stay in San Francisco or want to start your own company here one day, now you’ve got their email addresses too.

But despite all of this new competition, Yelp — which has been focused on local since 2004 — is still growing at a clip pace. Today the company has surpassed 50 million monthly unique users (as reported by their internal Google Analytics), up from 46 million the month before. And they have a total of 17 million reviews for venues around the world. CEO Jeremy Stoppelman says that the service is seeing a faster rate of growth for both contributions (reviews) and users than it has historically— in Q1, users wrote 2 million reviews, while most quarters average 1 million. In other words, even if some of these other services are gaining traction, it isn’t hurting Yelp.

To compliment its directory of user-submitted reviews (and to compete more directly with the aforementioned services), the company has launched its own local deals product and check-ins, though it’s still best known for its local reviews.

On a related note, here’s a video Yelp just shot about its most recent Hackathon. And if you haven’t seen it yet, make sure to check out our tour of Yelp’s office on TC Cribs.

In Silicon Valley it’s not just who you invest in that matters– it’s also when you invest in them. The earlier the investment, the riskier the bet. But the more jawdropping the returns if the company hits it big. It’s so lopsided, that typically just 5% of those unsure, early bets create some 95% of the entire venture industry’s returns. Miss one of them, and it haunts you for years. Snag it, and you can brag for even longer. This simple reality is precisely what makes the venture business hard, and the justification for why partners make such huge fees.

So what’s up with the surge of the strongest early stage firms jumping so heavily into late stage mega-deal fray? Have the Valley’s superstars lost sight of these rules or are the rules changing?

Earlier this year, we wrote a lot about the shift in power at the early stages with the rise of super angels, but you could argue there are far greater ripple effects to this new late stage frenzy. That’s not only true for the Valley, it’s true for Wall Street. And you could argue, those ripple effects are less well-understood.

Super angels move small chunks of money, hedged across thousands of startups. Worst case, they all go belly up. More likely, the bulk of them barely return capital and a few do really well. Either way, plenty of angels will make bad bets and stop being angels, but the financial damage is otherwise pretty limited. There are plenty of jobs awaiting even the most outrageously failed entrepreneurs.

But the billions of dollars in late stage deals being invested by the top firms in Silicon Valley are another matter. First of all, we’re talking about far bigger chunks of cash, mostly from pension funds and endowments. And these firms are making investments in the handful of sure $1 billion-plus winners that Wall Street and the Valley have spent more than a decade of sub-market returns waiting on to mature. Each deal represents dozens or even hundreds of people cashing out, while others take on a greater risk. And each deal represents another delay in companies like Facebook or Zynga going public.

And quietly there’s plenty of grousing going on about the trend. Some of it is pure player-hating, and some of it raises good points.

For example, the vast majority of VC firms who can’t raise a $1 billion expansion fund cry that these new mega-funds aren’t real venture capital investing, they are firms acting like hedge funds. Some allege they are even abusing their positions as the current darlings of the venture world to make huge trades in well-baked companies without any board obligations, but still get paid like VCs with huge management fees on these mega funds.

Within the elite Sand Hill Road club, VCs snipe about who is still adding value and draw distinctions between a negotiated late-stage deal and a pure secondary stock purchase. And, those who were smart enough to get in early on a giant like Zynga, Twitter or Facebook, chafe when a VC that’s thrown money at a rich secondary valuation now proudly lists those companies as core companies in their portfolios.

And then there are early stage companies hoping to disrupt giants like Zynga and Groupon and wonder if they should take money from a firm who is placing a much bigger bet on the well-funded giant. You could argue a firm staying out of the late-stage fray entirely may have a marketing advantage with them. And, as always, in the press there’s the page-view grabbing panic over whether the multi-billion dollar valuations are a sign of another bubble.

There’s even plenty of moaning about the deals on the east coast: At the Securities & Exchange Commission alarm bells are going off about whether these massive trades are just clever routes to skirt disclosure of a public stock. New York investment banks are furious that these deals allow anticipated IPOs in companies like Facebook to be put off as long as the company wants– robbing them of those lucrative banking fees. If they want a piece of the pie, they’re relegated to selling limited shares under huge restrictions, ala Goldman Sachs, or cozying up to an industry insider like JP Morgan did with Chris Sacca.

It seems the only ones who unabashedly love the trend are the handful of companies who now have free money whenever they want it at seemingly any price, without any of the downsides of going public.

Over the next few weeks, we’re going to do a couple articles digging deeper into this trend, the most important players and what it represents for the startup world and the tech markets at large. First, we wanted to pierce the marketing spin and shine a light on who has done what– and when they did it.

What’s unique about this trend is how huge the amounts of cash and valuations are, yet how small the number of players are. Only a small portion of firms can raise this kind of money and have the right connections to get into the best deals. Likewise as the Valley has become more polarized between huge winners– who raise hundreds of millions of dollars and employ thousands of people– and the small lean startups– who are built to flip– there are only so many deals that can justify these sums of cash and these valuations. But that doesn’t mean companies that probably shouldn’t get funded at these prices won’t. The several-billion-dollar-question worrying many limited partners is how speculative this trend will get.

Below is a graph of arguably the top Valley VCs, which of the big Internet companies they invested in, at what price they invested and whether or not they took a board seat in that round (a sign they’re investing time in the company, not just money). Green boxes denote an investment that’s all but certain to return capital; red boxes show investments that are at or near the last professional negotiated valuations and could still prove too heady. Current company valuations are based on negotiated deals with accredited investors or potential acquisitors, not secondary market speculation. Most of the numbers were from published reports or inside sources. (Click to enlarge.)

While most of these deals and prices had been reported before, a few things jumped out at me once I collected the data in one place. It’s clear the quality of deals is slipping. When DST pioneered this category, the firm was adroitly responding to a gaping market need. These companies needed huge amounts of cash to scale to the unprecedented 1 billion person online market potential, but the IPO market was closed. That’s no longer the case. “Oh, how it’s no longer the case! Please, dear God, call me!” some poor banker is no-doubt lamenting, reading this post.

Today, the best companies of the last ten years have all raised late stage money, and the prices are no longer a bargain. There’s only so fast that pipeline can fill back up. While I could argue $50 billion is a fair market price for Facebook, I find it hard to argue that Twitter is worthy the same or more than cash-generating Groupon or Zynga, given Twitter has gone through three CEOs in its young life, has no clear product visionary, and still isn’t making much revenue. Far more egregious: The idea that Spotify, which hasn’t been able to launch in the US despite more than a year of trying, is valued at the same price as soon-to-be-public Pandora. We’re seeing a clear move away from no-brainer bets towards more late-stage speculation. History has never shown that strategy to produce venture-style returns, said several top limited partners on the condition of anonymity.

But more remarkable is what this chart tells us about the fortunes of Silicon Valley’s top venture firms. For all the headlines that late stage is simply something “everyone is doing,” this chart shows a dramatically different story. Behind these red and green boxes lurks the same kind entrepreneurial drama that usually goes on in the companies VCs back. While dozens of venture firms are quietly going out of business for the first time in more than a decade, this chart represents the haves. And yet, there’s still plenty of drama as they grapple for position in this new venture reality.

This chart shows dramatic comebacks. In the wake of the dot com crash, limited partners privately told me that Accel Partners was one of two major firms that would never raise a fund again. When I mentioned this to Jim Breyer in 2006, he didn’t deny it. But he almost single handedly pulled the firm back from the brink. Accel missed Twitter and Zynga and others, but who cares? If you do the math, Accel is all but certain to have the best returns of the lot based on that $100 million bet on Facebook alone that seemed crazy at the time. The price the firm payed for Groupon is the icing on a massive Web 2.0 cake.

Similarly, Greylock had virtually no presence on the West Coast and no brand in consumer Internet. An early investment in LinkedIn and comparatively early investment in Facebook catapulted the firm into being one of the top names. And aside from Groupon, Greylock’s late stage bets haven’t been as valuation-aggressive as those done by other firms. If Pandora’s IPO prices where analysts expect, that $150 million valuation will look like a bargain.

On the other side of the chart– literally and figuratively– are Kleiner Perkins and Andreessen Horowitz, the two most aggressive at the late stage game, but utterly different stories are behind the common strategy. Andreessen Horowitz was formed after most of these companies, so getting in early stage rounds was impossible. But that doesn’t mean the firm’s partners were late to the Web 2.0 movement. The graph doesn’t include Marc Andreessen’s personal angel investments in Twitter and LinkedIn, nor does it include his position as one of Facebook’s few board members, because it happened well before he invested. For Andreessen Horowitz, the emphasis on late stage deals doesn’t represent any sort of shift. The firm was founded explicitly to invest in the best companies whenever the partners could get in. This was clearly telegraphed by the firm’s first deal: A beyond-late-stage investment in the already-acquired Skype.

Kleiner Perkins has been a different story. This is a firm that largely missed the early days of the Web 2.0 movement and has jumped back into it aggressively in the last year. The centerpiece of the strategy was a relatively early investment in Zynga. To be fair, this chart doesn’t show the early stage bets they’ve also been making in companies like Shopkick, Path and Klout. The success Kleiner has had reclaiming Web relevancy has been a testament to the lasting power of brand in the startup world. Few firms could have pulled it off. But plenty of people have questioned the prices they’ve paid to get back in the game– especially at the later stages. In both the cases of Andreessen Horowitz and Kleiner Perkins there’s plenty of industry eye-rolling when the firms rattle off investments in these very late stage deals as sample portfolio deals. Give them credit for getting shares in these scorchingly hot companies even at these prices, but its important for entrepreneurs and the press to realize when they invested.

That leads us to Sequoia and Benchmark– the two firms that are the most absent when it comes to these companies. Not reflected in this chart are Benchmark general partner Matt Cohler’s personal stakes as one of the earliest employees of LinkedIn and Facebook. Indeed, while Benchmark has resisted buying Facebook shares, Cohler has funded some of the most exciting companies to spin out of the Facebook mafia including Asana and Quora. The real surprise is Sequoia — a firm that was known in the 1990s for flawlessly picking nearly every consumer Web giant. While this chart doesn’t count the stellar return from YouTube or promising recent investments like Square, LinkedIn is the only sure-winner it has a large stake in.

I wanted to keep this graphic focused on the top traditional Valley firms, but there are two obvious omissions. One is DST, which started this trend with its aggressive investments in Facebook that now seem boringly reasonable by comparison to recent deals. We’ll have more on DST’s impact in a future post. In nearly 15 years reporting in Silicon Valley, I can’t think of another outsider who has so dramatically beat the Sand Hill Road establishment at its own game– not to mention redefining that game for them. No easy feat in a Valley awash in too much cash to begin with.

The other omission is a Valley outsider too: Union Square Ventures, the earliest investor in Zynga and Twitter. There are no signs of Union Square getting into the $1 billion fund game although it has raised a later stage fund called The Opportunity Fund. But at just $165 million, it’s not nearly as large or aggressive. It’s mandate is selectively investing in companies with a valuation north of $100 million– that’s still pretty early compared to what’s going on in the Valley these days. And Opportunity Fund usually invests in companies already in Union Square’s portfolio, says general partner Fred Wilson. In terms of returns, we hear that Union Square has sold enough of its Zynga and Twitter stakes to repay both funds and still leave it with plenty of upside. In terms of bragging rights, Union Square has bested these Valley insiders at the early stage game with at least two of our billion-dollar winners.