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Adams Capital Managament

Essay by   •  May 31, 2011  •  Study Guide  •  640 Words (3 Pages)  •  1,600 Views

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As an individual investor I would commit to ACM in its new fund ACM IV. I believe that there are opportunities of good returns to be made in selected targets and I am aware that investing in early stage VC requires a long term commitment (10 years to harvesting) and a certain disposition for risk taking.

My qualitative due diligence assessment ratifies my trust in ACM's management team. They possess experience, knowledge and focus of investment in the technological sector. I see potential in ACM's strategy of "Discontinuity Based Investing" especially now that there is a backlog in earlier technology investment. ACM's approach to managing its portfolio (Structured Navigation) assures me that my investment is being looked after by a "hands-on" management team. Moreover, this management methodology offers considerable advantages that could lead to positive investment returns and thus to an early exit.

From the quantitative performance point of view, ACM I was almost in the top quartile of VC funds in 1999, ACM II is in year 6, and still in the "managing stage" of the VC cycle and just a bit behind in the J-Curve as per the cycle. ACM III is on track with "values as % of cost" at 91%, called only 74% of committed capital and a possible current realization return of 2X.

The negative IRR returns presented for ACM II & III are irrelevant at this point in time as they are calculated in terms of less than 5 years from vintage and mostly represent IRR volatility . A better indicator is the TPVI and ACM II & III currently have an investment multiples of .14 and .68 respectively, which indicate the value of the funds in cost basis . ACM is performing as expected in its current portfolio. This is explained by the relationship between "IRR and Fund Sequence" that states: "First time funds perform especially poorly" . ACM have managed only 3 funds and ACM I was a "home-run".

In the final analysis, there is an existing relationship and trust with the GPs of ACM and this gives me the rational to my investment approach. Furthermore, even with all the contemplations made, there are no guarantees that investment returns will be all positive mainly due to uncontrollable variables such as economic conditions and the innate nature of early stage of VC investing.

ACM should strategically position ACM IV by:

1. Focusing in the industries they know best (IT, Network Infrastructure and Semiconductors) - Back to basics.

2. Continuing with a Market Centric strategy - deepen their sector expertise.

3. Taking a smaller position in a greater number of companies.

4. Developing an Alpha and Beta portfolio to improve returns and control risk.

5. Following

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