MyHeritage: Avoiding the MetaCafe Curse

gilad-smallBNEI ATAROT- In case you don’t recognize it, that dateline is the name of a small village about forty-five minutes from Tel Aviv. Don’t worry, my concierge hadn’t heard of it either. It may actually have more roosters than people living there. But tucked away, in a hundred-year-old house built by German Templars is one of the most exciting Web companies in Israel: MyHeritage. It’s also completely outside of the Israeli Web “scene.” I’ve never seen founder Gilad Japhet at any of the Web mixers, and I’ve never gotten a pitch from his PR people. In fact, I had to do a bit of hounding to get a meeting.

But don’t be fooled by the low-profile: MyHeritage is boasting some of the best numbers of any Israeli Web startup. It’s got 31 million registered users, who have documented 330 million family members, some living and some dead. The company has been backed by blue chip investors Accel Partners and Index Ventures. And Japhet told me on Monday, the company is starting to bring in real revenue from premium services and eCommerce transactions. (Think: sending flowers and candy to your parents for their anniversary). Japhet admits the company should have focused on this earlier, but says the lean operation should be break-even by the end of the year.

After a tour, Japhet said, “How long do you have? Because when I get going, it’s hard to stop.” He’s not kidding. He also took the liberty of giving me a bigger notepad. I think I asked one question, but mostly nodded and ate the homey selection of apples, pears and bananas that was laid out for us. But I’m not sure there’s anyway to tell the story of MyHeritage quickly. It’s been a long road and little has come easily for this company. As a result, more than a few people have described Japhet as a little crazy. That’s ok. I like crazy entrepreneurs. Frequently, you have to be one to succeed.

myheritage-2-smallAfter all, when he started MyHeritage no one was interested in a mainstream Web genealogy startup. He bootstrapped the company for years, mortgaging his house and begging a German company for free access to its facial recognition software. He was turned down for venture capital so many times, when he finally got a small round from prominent Israeli angels, he had to give up a lot of equity. “Have you ever heard this word ‘Chutzpah?’” he asked smiling.

It’s not that Japhet is modest: He clearly crowed over MyHeritage’s technology and other things he believes he’s done well. But he openly admits where he has struggled. One of the most pivotal events in his company’s history: The launch and monster $100 million valuation of competing site On one hand, it legitimized the space. But as his investor Simon Levene of Accel told him, “Be careful what happened to MetaCafe doesn’t happen to you.”

The story of MetaCafe is one you hear over-and-over again in Israel. The company is still alive, but the founders have left, traffic has stalled, and according to Arrington at least, acquisition attempts were thwarted. In case you aren’t familiar with MetaCafe, it was a lot like YouTube, only it launched earlier. It was growing nicely when, like an Israeli cabbie, YouTube came out of nowhere and sideswiped MetaCafe. (Yes, I’m trying to make Israeli driving jokes in every post about the country. I’m actually a big fan of the taxi drivers here. I’ve arrived at meetings in record speed over the last two weeks.)

If I’ve heard about the so-called MetaCafe curse at least two dozen  times since I’ve arrived, no doubt Japhet has heard about it more. After six years of building this company, putting a strain on his family and having to give away most of his equity to keep it alive, Levene’s words were like a call to action. “He didn’t say we were going to lose,” Japhet says. “He said, ‘You’re going to work really, really hard to make sure you win.’” And as TechCrunch has reported, MyHeritage is killing Geni in traffic, and buzz-wise everyone seems more excited about Geni founder David Sacks’ newer company, Yammer. Japhet likes Yammer too. “David Sacks is a very talented guy and now I only have to compete with half of him,” he says.

I’ve always been a huge fan of Geni’s user interface, and it’s still better. But MyHeritage gives you more to do. While everyone in Israel has been in a lather about this week, MyHeritage has long had pretty impressive facial recognition software that could also tag photos on Facebook, Flickr and other sites. Again, is glitzier, but at least Japhet knows this is a weakness. This is the real reason he bought the UK’s Kindo recently. “They didn’t have a ton of assets, but they were good at UI,” he says.

It’s been a tough road for Japhet. Maybe he built the company too early. Maybe he should have focused more on the Web than a downloadable client. Maybe he should have focused more on revenues a few years ago. But there’s also an advantage when things don’t come easily for entrepreneurs: They take nothing for granted and are less likely to get sideswiped by an upstart.