1. Data Sales provides leasing options to hosters; holding equity is key Enterprise and Mass-Market Hosting by Philbert Shih December 2, 2010 Data Sales Co is a family-owned Minnesota-based company that has been on our radar for some time. Data Sales is not a hoster, but helps hosting companies, particularly those young and up-and-coming ones, secure lease lines to finance purchases of equipment and hardware – namely servers and networking gear – necessary to grow and expand. The company got its start in the space years ago back with The Planet (before both mergers it has since been involved in) and quickly realized that the space was emerging as a home to growing amounts of IT infrastructure. With a background in hardware and technology equipment sales, it quickly saw how hosters, not end users, would be consumers of large quantities of servers. On top of this, Data Sales observed how in a young industry there were literally dozens, if not thousands, of small companies bringing on customers, growing quickly but not generating enough cash flow to fund expansion. Smaller and younger hosters have difficulty attaining traditional financing (exacerbated by the recession) so they are forced to get by with creative financing, credit cards and family friends. But that can only sustain a company for so long, and can be costly, unstable and a distraction from the business of building a good hosting company. This can't go on forever, and typically, hosters, if they reach a certain size, will look for an equity investment to get the capital they need. Of course, in exchange, the private equity firm will take a significant equity stake.Helped SoftLayer and MaximumASP Data Sales jumps in at this point and offers hosters the option of lease lines as an alternative to taking on an equity investment. Its sweet spot is about $1-3m in lease lines. The key to having a fully valued exit, of course, is to avoid giving up any equity. Lease lines allow hosters to survive without that and preserve equity. Data Sales disclosed to T1R that it helped FastServers with leases before it exited through a sale to Layered Technologies. And two of its other success stories were very recent. It helped SoftLayer continue expanding before it sold a stake to GI Partners, and did the same for MaximumASP before it was acquired before Cbeyond. Data Sales also disclosed Cervalis as a reference customer.T1R take The hosting sector has no shortage of young and emerging companies. They are small, lean, solid operators and innovators. Long-term success in the space, and a happy exit one day, is contingent on execution and building a track record. This takes energy and discipline. Distractions have never been helpful, as anyone trying to balance a budget just out of college can attest. At the end of the day, leasing options are about holding off an equity investment in order to maximize exit value. Data Sales has shown its services can help hosters attain these goals and is certainly an option worth considering for hosters. The key takeaway here is that the total cost of capital is a function of many variables and hosters should consider all of the options and find what works best for them.© Copyright 2010, Tier1Research.com. <br />