Beyond The "Strip And Flip"

It was brutally cold in Ottawa in January, 2003, when partners at private-equity firm Vector Capital were negotiating the purchase of software maker Corel Corp. More than once their flights were canceled after temperatures as low as -16F froze aircraft hydraulics. Alex Slusky, founder of San Francisco-based Vector, jokes that the inhospitable weather may be the reason his company was the only bidder. More likely it was the fact that Corel was losing money, suffering a severe cash crunch, and falling badly behind competitors Microsoft Corp. and Adobe Systems Inc. With its WordPerfect application, Corel was once a serious alternative in word processing, but over the previous decade the company had watched as Microsoft's market share climbed to 97%.

Three and a half years later, Slusky and a lucky few investors in his Vector Capital II fund have extracted plenty from the company. By ramping up Corel's debt from next to nothing to as much as $140 million prior to a May 2 initial public offering, Slusky has been able to secure a payout in cash dividends and stock sales of more than three times Vector's $58 million investment. For average Joes, however, it has been a different story. Since the IPO, the stock has dropped 30%, to a recent 11.27, down from 16. That makes it one of the worst performing IPOs of the year, far behind other technology deals and tech stocks in general. It's also near the bottom of the list of deals backed by buyout firms, at 31 on a list of 35 such IPOs, according to Thomson Financial.