Case Study: Adams Capital Management 1. Adams espouses a “market first” analysis of opportunity by looking for discontinuities. Is this substantive or window-dressing? Do the four types of discontinuities represent applicable guidelines? Are they comprehensive, or are there other discontinuity templates that a venture investor would find useful? 2. Analyze Structured Navigation. Is this a valid measurement of progress in early stage investing? Could such a program ever be a hindrance to company development? 3.
How does the ACM approach affect the recruiting, training, and management of ACM partners? 4. How should LPs of ACM view the ACM approach to technology start-ups (i. e. : Discontinuities and Structured Navigation)? Should ACM shift its strategy? 5. If you were an LP, would you commit to Adams Capital Fund IV? How should the ACM Partners position and sell Fund IV? 1. Adams capital management uses a “market first” approach in which the entire firm agrees upon the markets of interest before considering individual companies, thereby investing based on business fundamentals or market analysis.
In context with ACM, this approach is substantive since the GP’s all have engineering backgrounds, and they chose to focus on the information technology and telecommunications/semiconductor industries, hence utilizing their experience and expertise in choosing and exploiting discontinuities within the markets. Exploiting market opportunities raised from dramatic and sudden changes in a large and established market is the fundamental core of discontinuity –based investing.
ACM partners identified four applicable categories of causes for discontinuities; standards, regulations, technology and distribution. These four categories cover companies that have competitive advantage over a market or companies that are positioned such they would capitalize on a new market reality. In a sense it is comprehensive however as the definition suggests, any opportunity that may be exploited such that start up companies have a chance to become market leaders is useful to venture investors. 2. Structured navigation is essentially a five process checklist system for managing investments.
ACM does this by deeply involving themselves in their portfolio companies Aspects of the structured navigation include: * Establish a talented management team * Obtain a corporate partner or endorsement * Gain early exposure o industry and investment banking analysts * Expand the product line * Implement best practice The partners felt this was a valid measurement of progress in early stage investing since early stage technology companies shared many of the same benchmarks and needed many of the same elements to succeed.
I believe the program wouldn’t be a hindrance to company development due to its flexibility in the sense that there is no specific order in which they need to be “finished” and that the processes are positively correlated, overall increasing the probability of success of the company. 3. The ACM approach differs from conventional venture firms in the sense that instead of venture capitalists, partners, being key deal makers , each partner would be recruited, trained and managed the same way most business were; where employees , in principal, replaceable. . LP’s of ACM would probably have a strong positive view on the ACM approach. ACM portrays a specialised expertise in technology start ups with its discontinuities based investing and due diligence in management through its structured navigation. To a LP it is reassuring to see ACM capitalizing on competitive advantage, that being said ACM should not shift its strategy. However the issue lies with the allocation of resources in managing portfolio companies, where investing in more companies would dilute managerial resources. . Due to the systematic appeal of Discontinuities based investing and structured navigation approach of ACM, I would invest in Adams capital Fund IV. Considering that earlier funds operated in a more volatile market environment for VC, and that ACM is going to market with a good small early fund, a struggling second fund and a yet unproven third fund, the question lies with whether ACM decides to acquire and maintain significant positions and board seats as they had in ACM Fund III.