Adam's Capital management

1. Adams espouses a “market first” analysis of opportunity by looking for discontinuities. Provide a
critical analysis of this strategy and how it is operationalised by Adams from the perspective of
potential LPs.

The market first strategy is an approach that identified and sought to take advantages of
discontinuities within the industry segments ACM targets. Essentially the approach initially deals
with the fact that market analysis and fundamentals are of in ACM's investment strategy which is
essentially a top down approach as that start more broadly from a market segment then they
narrow in. With regards to looking for discountinuities, the aim is to look for industries that showed
potential for a discontinuity based investment, which could be either standards, regulations,
technology and distribution. A discontinuity investment strategy is essentially companies that are on
the verge or in the middle of taking advantage of movements and changes in a market which
incumbent firms are unable to react to in a timely manner.

In terms of how it is operationalised one aspect is the fact that there are three specific industries
that ACM specialise in with regards to investments, meaning that they had already an strong
knowledge base, but from a potential LP's perspective another encouraging factor would be the
market research undertaken by ACM, as Adam says "market due diligence is the only diligence you
can do independent of a transaction". In the same vein of the doing extensive research, ACM
partners only with engineers for the purpose of using their technical training. The discontinuity
roundtable meet with ACM partners to identify and discuss market discontinuities which is a
systematic approach that is beneficial from a LPs perspective as it shows an efficient search process.

The biggest negative for a potential LP is that by limiting ACM's investments to three industries is
that it creates a potential issue of concentration of risk that cannot be mitigated due to lack of
diversification.

2. Analyse Structured Navigation. Is this a valid measurement of progress in early stage Investing?
Could such a program ever be a hindrance to company development?

Structured navigation is ACM's system of managing its investments. Purpose is to keep track of the
progress each firm is making and also to gain early exposure to industry and investment banking
analysts, with the aim being that investment banking analysts could provide an exit strategy for
ACM, as it can set up deals in the future.

The 5 points to the structured navigation strategy are:

 Round out management team
 Obtain a corporate partner or endorsement
 Gain early exposure to industry and banking analysts
 Expand product line
 Implement best practices

ACM believed this was a valid strategy purely because many high tech companies had very similar
benchmarks and needed the same crucial aspects in the early stages to have any chance of being
successful. The fact that it is well defined helps in the sense that it provides clarity to these smaller
firms what ACM's value offering actually is, coupled with the fact that it fostered a common
increased communication between ACMs offices that were dispersed geographically.
The only issue is that the rigorous strategy also can be an hindrance because ACM are wanting to
invest in firms with discontinuity potential, which inherently is something that is unknown and
unpredictable at the best of times. The unpredictability could potentially use a more flexible system
that is not necessarily the "the rockstar model" but is less structured than a 5 step process and is not
necessarily as disciplined in execution.

3. If you were an LP, would you commit to Adams Capital Fund IV? How should the ACM Partners
position and sell Fund IV?

Adam's Capital track record with previous funds should be used by an LP as ACM have a very similar
strategy of choosing from a selected portion of industries. Also ACM's strong point has been its
market research and effort whether it be for market first strategy or structured navigation, which
indicates that ACM are not just searching for high quality companies but are providing resources so
that companies can improve as well. However it must be said that LPs should be concerned whether
ACM will be able to devote time to the Fund IV as Fund 3 is yet to generate returns which can be
considered more important for the VC in terms of gaining LPs commitment for future funds.

With regards to potential strategies for how ACM should position and sell fund IV, it should sell itself
as long term fund because based on its track record it has to be able to sell itself as a VC that can
provide returns and distributions in the long term. It should stick to its roots because they have
focused so heavily on having rigorous strategies that focuses on ACMs strong points, that it would be
difficult to see how ACM would be able to adapt to different industries as inherently flexibility could
be considered a weakness for ACM. The lack of flexibility and the long term selling point should
mean that ACM cannot deviate from Fund 3's approach too much because it should LPs that ACM
will come through in the long run.