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Data Returned

When we wrote about Data Return in October 2003, Sunny Vanderbeck had just bought back the Irving, Texas, Web-hosting company from its dot-com parent.
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The Problem
Vanderbeck founded Data Return in 1996 using a low-cost model: Rather than plowing millions of dollars into physical data centers, the company leased space and equipment from partners. Data Return went public in the fall of 1999 and shares soared to $92, only to plummet to pennies within two years. Vanderbeck decided to merge his company with Divine, a Chicago-based Internet conglomerate that wound up filing for bankruptcy protection in February 2003. Instead of raising money to bid for Data Return during an auction of Divine's assets, Vanderbeck teamed up with Saratoga Partners, a New York City investment firm, which paid $28 million for the company. The firm installed Vanderbeck as CEO, and he received a minority stake in the newly private business. He retained 100 members of Data Return's original team.

What The Experts Said
Yakov Amihud, a professor of entrepreneurial finance at New York University, said that Vanderbeck was smart to work with an existing bidder, since throwing his hat into the ring would have created a bidding war, increasing Data Return's ultimate sale price. David Marcus, then chairman of Netrox, a Miami Internet service provider that had a similar experience, said he probably would have encouraged Vanderbeck to raise the money himself to avoid losing control. But Marcus added that Vanderbeck's partnership seemed to provide the best of both worlds: "a good amount of control with very little financial risk."

What's Happened Since
It took about 18 months to "let people know that we were back and get the company running the way we wanted," Vanderbeck says. To that end, Data Return launched an ambitious public relations campaign, running advertisements in several major business publications. Vanderbeck also hired 40 new staffers to beef up his finance, sales, and marketing departments. In 2004, Data Return expanded its services from Web hosting to running entire IT infrastructures. A year later, it unveiled a new software platform, Infinistructure, that allows clients to cut costs by pooling servers. Data Return's sales rose to near dot-com highs of almost $60 million last year. Vanderbeck's investors at Saratoga Partners have been supportive, but "usually as involved as we like them to be," he says.

What's Next
Data Return launched MH One, an all-in-one Web-hosting system, in late 2006. This year, Vanderbeck plans to focus on expanding MH One and Infinistructure. "Now it is all about a balance between profitability and growth," he says. "We are a much better business than we were before."

Last updated: Feb 1, 2007




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