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Inflection's Monahan Brothers Climb the Family Tree

May 04, 2012
TheDeal
by Olaf De Senerpont Domis

It’s not quite on the scale of Facebook Inc.‘s doling out $1 billion to buy a dozen guys and a mobile photo app, but Ancestry.com Inc.‘s agreement last month to purchase family history site Archives.com does represent a Silicon Valley home run for a young team of entrepreneurs.

The $100 million deal, the largest in the burgeoning online genealogy sector, also exemplifies how market success can catch the eye of a much larger rival and, in a short amount of time, turn a good idea into a lot of money.

Archives.com is one of several businesses operated by Inflection LLC, a six-year-old company founded by brothers Matthew and Brian Monahan that has digitized public documents and built large databases of information about people. Rather than focus on one particular market, Inflection worked on developing an offering that could be applied to any number of areas, with historical documents being just one of them.

“Ultimately, my view is that it’s hard to keep up with the number of new opportunities that are all moving so fast,” says Matthew Monahan, 28, the elder of the founding brothers. “I’d rather build a company with a great team that gets along together and is creative versus focusing on a single product or model.”

With the Ancestry.com deal, which was announced April 25, it’s a strategy that has worked better than the Monahans could have guessed.

Archives.com was launched in 2010 and has amassed more than 2.1 billion historical documents including birth records, obituaries, immigration and ship passenger lists, historical newspapers and censuses from the U.S. and the U.K.

The idea to start Inflection originated with Brian, 24, Inflection’s “chief idea guy,” who dropped out of Harvard University after his sophomore year to develop technology to harness the floods of data that were moving online, including business cards, court documents, yearbooks and newspapers. His older brother dropped out of the University of Southern California’s entrepreneurship program, founded and sold a tiny e-book startup and then joined his brother in Silicon Valley to launch Inflection and become its CEO.

They developed a technology platform, dubbed Storm, that enables services such as Archives.com and Inflection’s other products by offering data warehousing, billing, advertising and other features.

For the first few years, Inflection was bootstrapped, but the company raised a $30 million Series A round in 2010 from Matrix Partners and Sutter Hill Ventures. It was generating “tens of millions of dollars” of revenue, as the elder Monahan puts it, but he and his brother wanted to continue to hire and grow the company as aggressively as possible rather than worry too much about beefing up its balance sheet.

“We wanted to put the gas pedal down,” Matthew says. Archives.com did just that, most recently striking a deal with the U.S. National Archives and Records Administration to provide digital online access to the 1940 Census.

But before that, the elder Monahan had been meeting informally with Tim Sullivan, CEO of Provo, Utah-based Ancestry.com. “We were keeping tabs on each other in a light and friendly way,” Matthew says.

However, soon after the April 2 launch of the 1940 Census service, Sullivan took notice of how aggressively the company was expanding its business. Ancestry.com, the leader in online genealogy, has focused on piecing together users’ family trees and boasts a collection of more than 34 million of them. It had also been expanding via acquisitions. Following its November 2009 initial public offering, it bought Swedish online genealogy company Genline AB for $7.2 million in July 2010 and professional genealogy research firm ProGenealogists Inc. for undisclosed terms in August. It capped off its mini-M&A run in September with a $27 million bid for iArchives Inc., which offers more than 65 million digitized American historical records from the War of Independence, Continental Congress and Civil War.

The Archives.com deal is the largest ever struck by Ancestry.com.

“Ancestry.com was very impressed with the things we were doing in the family history space,” Matthew says. “We were figuring out things they hadn’t.”

The company considered hiring an investment bank to help it with the challenge of arriving at a valuation, but instead opted to lean heavily on its executive vice president of business and corporate development John Spottiswood (Ancestry.com didn’t hire an outside financial adviser either).

While bidding adieu to Archives.com won’t be easy, since the employees who will join Ancestry’s San Francisco offices are part of a tight-knit familylike Inflection culture, the elder Monahan says the $100 million from the sale will fuel the company’s other projects.

“We didn’t view this as a plan to spin off a division, but as a way to bring more capital into the company and some shareholder liquidity without selling stock,” he says.

Inflection is also the operator of PeopleSmart.com, an aggregator of public records, including court documents, contact information and social networking profiles for small businesses and other professionals. The company also is planning to launch Identity.com, which will help consumers monitor and manage the often unexpectedly expansive amount of information about them on the Web.

Time will tell if Inflection hits another one out of the park.

Inflection's Monahan Brothers Climb the Family Tree

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