And now for something completely different. This week, we take a break from our ongoing quest to uncover budding Rule Breakers to profile some of the more ludicrous investing stories taking shape in the world of private equity.

Bait and switch
First up this week is Switch and Data, which recently filed an S-1 prospectus for an IPO that is expected to raise as much as $150 million. It's an interesting story, insofar as it recalls the dot-com bubble.

Allow me to explain. According to background material at its website, Switch and Data was founded in 1998 as a provider of "co-location and interconnection services" for telecom providers. But that's code-speak, of course. What we're really talking about are data centers -- 34 of them in 23 markets, to be precise.

Sound familiar? It should. Defunct businesses such as Exodus were providing data center services during the bubble, too. But, to its credit, Switch and Data survived.

And it has grown. The firm says more than 800 companies have chosen its services, one of which is Limelight Networks, a formidable competitor to Motley Fool Rule Breakers selection Akamai Technologies (NASDAQ:AKAM).

I think I know why. Smaller Internet Service Providers (ISPs) aren't likely to pay the big capital expenditures and maintenance fees that come with owning a data center, especially when they've little to offer beyond bandwidth. (Which, frankly, isn't all that expensive.) Outsourcing to someone who's maintaining and depreciating the equipment makes economic sense.

But that hardly makes this IPO worth your time as an investor. Have a look at revenue and operating income since 2003 and you'll see what I mean:

Metric

2003

2004

2005

Revenue

$69,840

$91,449

$105,414

Operating expenses

$64,815

$99,534

$106,560

Operating income

$5,025

($8,085)

($1,146)
Source: SEC filings

Yeesh.

And it gets worse. Consider free cash flow. Switch and Data produced $5.8 million in FCF during 2004 and $8.3 million in 2005. But that was before repayments of principal on its debt, which equaled $41.8 million in 2004 and $91.3 million in 2005.

Debt is, in fact, a huge problem for Switch and Data. The firm carried roughly $144.8 million of it as of June, resulting in $5.8 million in interest payments during the first six months of 2006. Without that, Switch and Data is (almost) a break-even business on an operating basis. No wonder it's petitioning for an IPO; it needs the proceeds to get within spitting distance of a workable business model.

Switch and Data? Sounds more like fish & cut bait to me. That's why I'll be shorting this Faker Breaker in Motley Fool CAPS the minute the IPO goes through. Too many visions of Vonage (NYSE:VG) are dancing in my head.

More moola for wayward corporate boards
Next is BoardVantage, which is too juicy a story to ignore. In the wake of charges filed against former Hewlett-Packard (NYSE:HPQ) chairman Patricia Dunn, this maker of portal software aimed at helping corporate boards do their work raised $5.5 million in additional funding from existing investors Bay Partners and Foundation Capital.

Read that last sentence again, because it's important. What it means is that more money came in from those who already had a stake. And what changed? HP's board got caught up in a scandal that reeks so bad you can smell it here in Colorado.

Of course, the funding has nothing to do with the HP scandal, right? Perish the thought! I mean, BoardVantage's October 13 seminar on dealing with the "HP experience" shouldn't be construed as shameless profiteering, right? Right. And besides, the press release announcing the funding points to massive growth and a "second-generation portal." See? No problem!

But, of course, the real benefit of such software is that it enhances communication while cutting down on the need for face-to-face meetings, thereby saving money. If only BoardVantage's clients were taking advantage of that benefit. International Paper's (NYSE:IP) board met face-to-face six times during 2005. Hershey's (NYSE:HSY) board also holds six annual meetings. At least BMC Software (NYSE:BMC) held two of its last six board meetings by phone. Think they were using BoardVantage's portal during those two sessions? Yeah, me, neither.

That's all for now. See you back here next Friday when we get back to the quest to find the next ultimate growth stock.

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Fool contributor Tim Beyers owns shares of Akamai, which, like XM, is a Motley Fool Rule Breakers pick. Get the skinny on all the stocks he owns by checking Tim's Foolprofile. The Motley Fool'sdisclosure policyis a rebel with a cause.