Michael Stoppelman — Angel, scout, friend

Wednesday, May 25, 2022
Michael is one of the most sought after and prolific angel investors in LA.  One year he invested in 50 companies… and that was before joining a prominent scout program.  We also talk about growing Yelp with his brother Jeremy Stoppelman.

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All right. Hey, Michael. Hey, we’re here with Michael Stoppelman, that is what he is known to me as.

Michael and I have known each other for like fifteen years, something like that.

And Michael is one of the most prolific and sought after angel investors with something like a hundred and forty angel investments, which is awesome.

Before that, Michael was at Yelp for like some like ten years starting as an engineer and working way up to a senior vice president of engineering.

And with me at Google many years before that, pre-IPO days. Thanks so much for being here. You’re also Bhatta Surfer.

Thank you for inviting me to this podcast. It’s a real honor to be talking to you.

That’s silly. Welcome. Yeah. Welcome. So give us I give a little bit of who you are. What did I miss there?

So. So when I graduated from Purdue and computer science, I moved out to San Diego because I wanted to become a surfer. And I spent two months there, couldn’t find a job, and ended up at this little startup called Google, getting an offer from Google. All the v.c is in San Diego, told me that I should take the offer and I’d be stupid not to. So it was a post-sale support job.

And at Google. So it wasn’t an engineering prop..

And so I was working the night shift when I first started at Google. So I was working five. I’d start my I’d start at 9:00 p.m. and then go till 5:00 a.m.. And what year was this? This was in 2003.

So one year before the Google IPO and at the time it was really stratified like the. You are an engineer or you could be in the engineering or out of the engineering org.

Yes, sir. So quickly, I learned as a 22 year old that at Google that being an engineering was the place to be. And I had a computer science degree. I just didn’t have a master’s or a p._h._d. Which was pretty much the requirement to get an engineering. And so I spent the year trying to figure out a way to hustle my way into engineering.

And so in that year, I built a bunch of the tools for AdSense for it for this new product called AdSense that Google is just rolling out.

And I built a bunch of the tools to detect when publishers were being fraudulent work or getting at basically people click on their own ads to make money from from ad from from AdWords and then they’d be paid by AdSense.

And so I built a bunch of the tools to find find what those publishers were doing. And so that tool is then sucked into engineering and I got sucked in with it. Well, done

And then and then your view went from there. Your brother started Yelp.

Yeah. So in 2004, Jeremy took a he took he took the summer to go work in Max Levin’s famous incubator.

And he decided he was in business school at the time.

He had worked previously. He was V.P. of engineering at PayPal and did his first year as boss at x-com, which then merged with pay policy on mosque. He had taken them. He had taken the summer off to go to go work with Max and figure out if there’s a startup.

Just a startup to start. And then he decided he had the idea for Yelp. The idea started off a little bit different. It was ask your friends for recommendations of local businesses. So if I needed a dentist in L.A., I’d be like, hey, many do you know the dentists in L.A.

And you’d be like, now I live in Pasadena. But you’d forwarded it to David. And and hopefully David would then tell tell me what Dennis to go to. And so that through that action you would get you would get a collection of recommendations that did not work.

Then the version of Yelp that you see today. Inspiration came in 2005. And then no iPhone app existed at the time.

No iPhones weren’t a thing until 2008. So we were building we were building for the BlackBerry phone and things like that when I got there.

And so I decided to join Yelp in 2007.

And at the time, probably probably three or four months before that, there was an offer from Yahoo! To buy Yelp. Was that hard?

Was like, I’m curious. Was it a good offer? Did your brother consider it?

There it was. It was a 12 person company that time. I think Yahoo! Offered somewhere in the neighborhood of 100 million bucks. So it was like it was a decent offer. But I think Jeremy Germy wanted. He wanted to go for the go for the medal. So it’s always interesting.

Those like that could be life changing. Yeah, interesting. Yeah. So there’s a good, good decision. And any convince you to join? And and how big was the ulpan when you joined?

So I joined when the company was 40 employees. It was six in engineering. So what was some of that early days stuff for you?

So so the so I remember the first day I showed up, I was coming from Google. So Google at the time when I left. So it had gone from a 1000 person company when I joined Google to 15000. The engineering team at Google. By the time I left was 5000. I immediately quit. Google showed up at Yelp and then I’m sitting around the entire engineering team. That’s six people. Right. And so it’s kind of a shock to be coming from a 5000 person engineering team where you kind of feel like you’re one of many to like, okay, I’m twenty percent.

Fifteen percent of this entire, you know, this entire team. And so that was pretty shocking. And then, you know, in the first couple days, it was like, okay, my goal, like we want you to take over the search engine. And I was like, okay, this is pretty this pretty exciting.

And, you know, I I had this sense of scale from Google that was so, you know, the the the logs that we were we were looking at per day, we’re like in the terabytes.

And then all of a sudden I was able to like cat and grab the logs, meaning meaning that the logs were were so small that you could read them just with like a you know, like a notepad, like Microsoft notepad would have work to look at the logs.

And so one of the funny stories of the first day, first day help was I was looking through the logs to see what the searches were.

And most of the queries were actually from the load balancer, making sure that the search engine was up to keep it in the load balancer. And so it would it would log all these queries to check, do health checks.

And so it had more of those lines because it was checking every minute or every every second it would check. And so there were more lines from that than there were from actual users.

And so how long did you how long did you own search? How did you build that out? Yeah. So. So I was I was the primary engineer on search for probably a year and a half.

And then we finally hired hired a couple of people to take, you know, to start helping out. And it was it was firefighting every night, making sure that search engine would stop. The search engine at the time couldn’t re-enacts businesses without falling over. And so I would have to wake up or I would have to be up at around 2 a.m. to take the search engine down and then restart it to make sure that like the users the next day, it could could use the search engine.

So it was definitely held together by a bit of duct tape, engineering. Duct tape.

That’s awesome. And how did you grow out the team? Did you end up? What did you do after you said someone else took over search at some point? Yeah.

 I always say a team has at least you have to have at least four people on a team.

One person is is taking care of fires. One person is working on working on bugs. One person is working on new features and then one person is sick or.

And so like by the time we got four, it was probably two years into my time at Yelp that by the time we had four engineers just on the search team and then at that time we needed a team for mobile. Right. Because I started in 2007, the iPhone, you know, one of the biggest moments for Yelp. Was that was that that pivotal moment when Germany decided to dedicate. We were probably 12 or 14 engineers to dedicate two of those engineers to working on this nascent platform that didn’t have over a million devices in the hands of consumers, but looked like it was going to be the future of computing and that was the the launch of the iPhone.

And no one knew that the app store was actually in an open up to other apps. And so when that happened, we we immediately dedicated a couple of engineers to working on an I.O.U.S.A. App, and that was a pivotal moment for the company, because if we hadn’t gotten positioning on the iPhone, the rest would’ve been history.

Wow. And how was the. I’ll go back to angel investing.

But it’s fascinating is just for the record, she said we should start with a short back to angels.

So and where was funding coming in and how are you guys thinking about just that? Was users, like profitable or how is that working?

Yes. So so we had raised money. Our series Xav was from Jeremy Levine at Bessemer Ventures. And I think our series B was benchmark. I think in total Yelp only before IPO to only raise somewhere in the neighborhood of 30 million dollars, which really gives you an idea of how small the funding sizes were back then.

But Yelp was really a story of exponential growth on the consumer side.

Every week we were taking off, you know, OK, we just hit we just hit city searches, numbers, because at the time, CitySearch was our main competition city. CitySearch took a more business perspective on the local review space and we took a more consumer apps, consumer perspective.

So CitySearch was about 14 million uniques every 30 days. And so when we passed CitySearch internally, we’re like, maybe this is the end of the market. Maybe like 40000000 was like the cat. And then it just kept zooming past.

And we you know, the the 30 day user metrics on the Google Analytics dashboard just kept ticking up. And so every week it was like another another metric, another you know, another metric record, another metric record, another metric record.

And so we were just like all baffled by the speed at which this thing was growing. And so that was there was a beautiful moment.

And correct me if I’m wrong, but so when you went public, there’s a picture. You’re up there right at the New York Stock Exchange. Yes.

So is my my brothers hitting the bell? I’m over to the corner right with my mom. And so my mom was there as well.

And so it was quite, quite an epic day. We you know, I think when, you know, management, when you’re going through an IPO, the biggest thing is that you you want to you want to make sure that people are celebrating and excited. It’s probably like going from from college football to like NFL kind of like step up. And so now you’re doing public earnings calls every every 90 days.

You have to report on your your earnings and you have potentially, you know, Yelp at the you know, in the first probably five years had like something like 20 to 30 analysts building spreadsheets, scrutinizing every earnings call. Look at, you know, like asking you questions live for for Jeremy and the rest of the. Exactly. The the CEO and CFO were on the earnings calls.

But it really it really brings the it brings the spotlight to the company in a way that you need to have all your all your ducks in a row, every quarter to like really nail it. And so I think looking back, the professionalism and the and the upgrading of systems and the rigor around key metrics, just like took a whole new a whole new step up once we went public.

So. And what year did you go Republican? We went public, I think, in 2012, March of 2012. Correct.

And then you left just a couple of years ago?

Yeah, I left in March of 2017. And were you and as your angel investing and moving into the angel investor, has that really cranked up in the past two years? Then how do you think about your angel investing? Yeah.

All of the investing activity I did was because I love supporting entrepreneurs. I like being around entrepreneurs. I like being around new ideas. And so 2010, I started investing because that was that was around the time that I started having a little bit of liquidity to put around. 

So my friend Peter, who is on AdSense, started started context logic, which turned into a small company called Wish and so wishes now on the Lakers jersey. They’re doing incredibly well. They they they’re kind of like an Amazon, but for four different demographic.

But for the past couple years, my understanding of your life is that you’re leading some dream life, which is your prolifically angel investing and aren’t really tied down to anything else.

Yeah. So in in at the end of 2017 I was leaving Yelp and I couldn’t think I couldn’t think of a better way to spend it than to go on a few yoga retreats.

So I went on yoga retreats that I went surfing and I felt that I needed a chance to like kind of I think when you’re inside of one of these businesses, you’re you’re you’re really stretching every part of your brain.

And so I just you know, I was so coiled up.

And so, you know, my personality had been had been so intermeshed with kind of the, you know, the Yelp brand and everything, like your ego is attached to your title and all of this stuff. And I just needed to like kind of unpack all of that. And so over the next five months, I guess I spent time, you know, just in nature. And so, like, nature was my way of of kind of healing.

And and so through that, you know, a lot of my friends, a lot of my friends are investors and and a lot of my friends are entrepreneurs. 

I’ve continually supported all of my, you know, like a bunch of a bunch of mutual friends of ours who are been incredible entrepreneurs.

And so one of my observations from Google was that a lot of the a lot of the people around, like one of my co-workers was Eli Gill. Another another co-worker was David Freedberg. Another was Peter that started Wish.

So was there a day when you said, I’m going to become a professional angel investor or did you just sort of happen? Is your job now? Right.


So I really love there were parts of the SVP of Engineering at Yelp that I really loved, which were, you know, providing allowing teams to kind of flex their flex their wings, you know, build these incredible build these incredible technical innovations.

And and being the first person to kind of see the vision and be able to support them, that that was that was the fun part of the job for me, the not so fun part of the job or setting. Okay. Hours every quarter, you know, doing one on one’s on this rigorous schedule. The angel investor job has a lot of the benefits of being able to do the things that I liked without the things that I didn’t like.

And some point along the line, you also became a scout. Is that right? Yes. So while I was investing at this crazy terror. So one one of the questions that you have when you when you start angel investing is like, how many deals should I do a year? What should my cheque size be like?

Am I a good angel investor?

And so over time, like I was investing at this crazy terror the first year. So I did 50 investments here in a year and the first and then I was like, okay.

And so the next year I met Nina and Index.

And and I was you know, I decided that, hey, I maybe maybe I should maybe one of the options was, hey, we have a scout program. Maybe I should join this thing.

And so I decided I decided to join their scout program because it enabled me to have an extra part of my balance sheet.

So I could I could keep my checks pretty pretty small, but also have had this extra money that I’m that it’s coming from a scout fund and then be able to double up and then get carry on the money, the extra money that’s coming in from the scout.

Do you feel? Does it feel any different?

So so I you know, I think that’s. So there’s definitely some.

I’d say there’s 25 percent of deals where a founder is doing a friends and family around and they do not want scout money or like a lot of times have been boxed up because they just want a very small check and they just don’t have room.

So for strategics, you know, like I see myself as a strategic investor where it’s like, hey, you want to de-risk your engineering, your engineering team, you know, management advice guy.

I’m helpful in that. And so that that’s where, you know.

And then they want my money, but they don’t want anyone else’s money. Do you? I guess what I was asking for me when we went from being gillean, I being an angel fund of to to actually investing other people’s money, it felt very, very different. And yes, it feels so one of those spots.

But yeah. So one of the one of the the things that I keep in my head is that I want my I want my scout portfolio to return as well as my own personal portfolio, because the only thing that’s external to other investors to judge to judge my quality of investments by is going to be this the scout return.

And so I want to be very careful. And how that how that returns and the way I keep myself honest is that I write every check is half from my own money and then the other half is from the scout money. 

So I’m interested in that. Because when we spoke before, I know that you’re a scout, but I wasn’t sure whether we were going to be allowed to discuss it. Because a lot of times like won’t appear on the cap table. Is that too? Why are scout program so secretive?

At the end of the day, all of this invest like 90 percent of this investing, 75 percent of investing is purely based off relationship.

Someone earlier Google comes to you and asks you, hey, I’m thinking about raising of raising around. Do you then tell everyone in your network that they’re raising around? No.

You figure out first whether, 11, 10 is going to be the the primary investor and lead the round.

Right. You’re not going to go to Su-Su Ventures and tell them that you have a Googler that’s trying to raise money. And just think the fundamentals is first. Most Scott-Heron’s I I don’t understand this booms that well, but my understanding is that most of them, they kind of give you a pool of capital.

You get to invest it.

There’s not they aren’t really approving your investments. Do they give you some timeframe where they expected to be invested? How does that work?

In terms of like capital deployment, I I’ve I’ve been just operating with like where are the what are the highest quality deals and what can I get? What can I get money into? I think that’s always you know, you always hear whispers of like, oh, this venture fund is trying to dump a bunch of money into the market because they want they’re raising their second fund and they need to close out their first fund. And so I just don’t have that constraint.

And so I’m not trying to I’m not trying to deploy a bunch of money just to deploy a bunch of money like that’s not.

And they mostly want you to invest into. Early stage deals because they’re getting a later look.

Or would they be OK if you’re investing late, know they typically want what these investments to be pretty, pretty early. So they’re either seed or series.

So what do you angel invest in?

So I like to invest in software. So I like I like a lot of enterprise SAS.

I always like I tell everyone that I like boring companies, not the boring company.

We like boring companies. Yeah.

But I really love things in the compliance space. I like things in the in the security space.

I I just like I think I feel like with when you’re in and as an investor. My my my superpower as an investor is that I. I basically was the the core infrastructure investor for Yelp for many years.

And I also as the investor for a lot of I.T. systems. And so from that vantage point, I have a perspective on the world that very few people have. Where it’s like I served in the seat where I was responsible for all of the UPS data. I was responsible for privacy. I was responsible for authentication for all our corp users. You know, all of these things were flowing through my head for 10 years or four for like let’s say eight of the ten years.

And. And when you’re in that seat, you see you get a different perspective than than being on the outside.

But another part the I’d say the more important part is just my I probably interviewed four to five thousand people over my career.

And so just having that training set of people that my brain has seen and then see, I’ve gotten the feedback loop of hiring them and then seeing how they do in the organization, that’s really that’s really the the I think the the competitive advantage, that’s very hard to compete with where I’ve seen people, you know, to reject through an organization for 10 years. That’s really like I mean, you don’t get that without that that kind of, you know, 10000 hours kind of Malcolm Gladwell expertise.

Do you have things that you advise? So let’s have not a security, primarily a security company. But I do need to build security into my company and my product.

How do you get involved in what sort of you know, how do you advise people on how to do that and what they need to look for and how to grow the team at what stage they need to think about sort of levels of security or infrastructure?

Yeah. So the first thing that I I usually ask an entrepreneur is like, what?

You know what? What are your threat vectors? So like, if you’re gonna be handling mental health data for a bunch of users, like are you thinking about HIPA and like, how are you? How are you thinking about storing that data and are using a HEPA compliant data storage? You have to retrofit that thing after you find scale because you’re you’re running you know, you’re running a little you’re you’re ignoring the compliance stuff for now until you get product market fit.

So you know, and then and then being able to connect folks with the right resources to be able to answer those questions. So like, do you have a hip, a lawyer? And are you have you know, do you have the right privacy policies and all the things that come along with being a bigger companies, like as you evolve and you become bigger and bigger and you you’re you’re the owner of lots and lots of data, things become very serious and that and, you know, you end up you end up in, you know, with people asking for discovery documents and all that stuff.

So my brain has seen all of that stuff. And so I try to try to help founders instead of having to retrofit their their startup with security, not being part of the the base layer. I try to inform them of kind of like how I screwed up and how you can kind of like there’s a lot of basic things that you can add right now that will be so much easier if you do them. So, for example, second factor authentication is a great thing to turn on on all your Gmail accounts from the very beginning.

There’s no reason not to at this point and you would be surprised. That most Fortune 500 companies probably do not have second factor turned on on everything. They probably have a second factor on like 50, 80 percent of their organization. But there’s probably lots of places in their organization. Old Oracle systems, old like Sybase systems that don’t have second factor on them.

And it’s really hard to retrofit these old like, you know, you know, legacy systems with second factor. And so they just they kind of lag.So so, you know, the second factor, full disk encryption, just like basic hygiene stuff for a corp networks like I just try to help down founders and CEOs and anyone like just do these basic things at the very beginning.

It’s very easy to do it with ten people around. It’s very hard to do once you have a thousand or two thousand ploys. Do you help companies hire engineers and vet them?

Yes. Or some? Sometimes all help.

Usually I help with strategic hires like CEOs. So. So I’ll do I’ll do interviews for CEOs. I’ll help up close candidates at the very beginning.

So great. I feel like that’s been pretty helpful.

The founders to move to the lightning round, lightning round where I see the name of a local L.A. fund and you give me the first word that comes to your mind. I’m just kidding.

Okay. No, let’s try Vlasak a little like.

Interesting question. So you worked for your brother for a number of years? Yes. You guys are still friends. Is it still? Yes. OK. He’s still the CEO of Yelp.

He’s still the CEO of. How was it like Yelp? Google have been fighting for a number of years. There always are.

We always there’s a lot of like, you know, there’s just a lot of negativity when it comes to Yelp, where people blame Yelp if their business, SEATO doesn’t succeed. Do you do you feel that?

I definitely felt that. I felt that when I was working there. You always feel that. I think when you’re a deep part of the organization, you’ve dedicated your life to something. It’s for sure. Like the. The rumors of any sort of pay-to-play or Yelp does anything is is all false. And and, you know, where were the Yelp as a as a company is trying to do the right thing in terms of the Google Yelp relation to Yelp relationship.

It’s kind of you know, it’s complicated. And and I think that if you look at the history of the antitrust stuff, I think you see a pretty clear case of of abuse. And I think that, you know, it it speaks to a lot of, you know, Google has has pretty much paid for every lobbyist in DC. They like I think that Eric Schmidt learned a lot of the lessons of antitrust from being the CEO of Novell and fighting Microsoft.

And he learned the playbook of how you fight, how you fight the government from the Novell side and use that at Google to build up the strongest government relations department in the country. And so he really he really learned the playbook from that and they’ve exploited it really well. And so you see, if you look at like donations from Google in terms of Democrats and Republicans, they have both sides linked up and they’ve learned the playbook of taking over think tanks.

And, you know, George Mason is has a think tank that that writes a lot of pro, you know, free market stuff that’s all funded by Google. And Google uses that, just like the tobacco industry used, used, used the, you know, different funding sources to show that cigarettes don’t cause cancer.

Well, no bitterness.

You know, the breaking point, the and the Google Yelp relationship or one of the points was Google at Google for a while was we had a we had a business development relationship. Yelp did not I’m not at the company anymore.

Yelp had a relationship with Google to allow Google to have. Go and review content on Google, local Google, local slash Google Maps and then. Google decided that they were going to start accepting reviews onto Google local and Google Maps. And at the time, Jeremy decided in German Yelp decided to to discontinue that relationship and then ask Google to remove the reviews and photos. And Google did not. So would we stop? We were giving Google at the time and x_m_l_ feed and then we turned off the x_m_l_ feed and then the reviews and photos stayed up and we we asked them again to take it down.

And they said, well, if you want to not be in Google local or Google Maps, you’ll have to d index yourself from Google dot com. Well, I didn’t not know the story, the D Windex yourself. So use robots.txt and turn off Google Google to Google Crawler from crawling Google from crawling Yelp in total. You have to turn off all of your Google organic traffic.

Got it. So in orange did not appear on maps. You have to get out of everything. Yes. So then we went to the attorneys generals of the West Coast, presented our case. A week later, Marissa said we made a mistake.

Marissa Mayer was a V.P. of Google search at the time and we had a misunderstanding. And then all of a sudden, all of the changes that we wanted to start happening started. So you told me they were abusing their position.

Yeah. Well, you know, I mean, mostly I have the same comment which you had about Yelp, which is do you think it was full of people who are mostly trying to do the right thing?

I really do believe it. But, you know, try and do the right thing. Only gets people so far. And sometimes it’s a complicated life.

We live here. I mean, at the end of the day, it’s very difficult for businesses that have to keep a growth rate up. You know. But, you know, the pluses and minuses of the public markets are that if your growth rate is not for a technology company, if it’s not above 20 percent year over year, like earnings growth, your your revenue growth, you’re kind of in trouble.

And so like that, just that just will push you to be more and more aggressive.

Got it. Well, not to end on a negative note. Can we say, like how you like in L.A.? Give me like you do something positive here, do you? Are you staying in L.A. for the rest of your life? Are you here for the for the count?

I love L.A., but don’t tell anyone to northern California. I got it. But I’m excited for you to just continue playing a huge role in the L.A. ecosystem because having a vibrant angel ecosystem is fantastic. We have to see a PI day.

Awesome. I’m looking forward to it.