Adam Capital Management
9-806-077
FEBRUARY 1, 2006
FELDA HARDYMON JOSH LERNER ANN LEAMON
Adams Capital Management: Fund IV
Joel Adams, founder and general partner of Adams Capital Management (ACM), a $700 million early-stage venture capital firm investing in the information technology, networking infrastructure, and semiconductor industries, glanced up as his fellow general partners trooped into his office on a brisk December morning in 2005 for their annual retrospective and planning meeting. The main topic on the agenda was a new one, —would 2006 be the right time to launch their fourth fund? Since late 2000, ACM had been deploying its $420 million third fund, using its “markets first” strategy, an approach that identified and sought to take advantage of discontinuities within the three industry segments it targeted. Having invested in a company exploiting such a change, the general partners then guided the investment through a five-point structured navigation system. In November 2005, ACM III sold a portfolio company and made its first distribution to its limited partners (LPs). The fund’s portfolio also had 18 other operating companies that were showing steady growth, and two new investments were in the due diligence phase and preparing for final negotiations. “The question as I see it,” said Adams to his partners, “is whether we need to exit more companies and generate additional distributions to our LPs before we start raising ACM IV.” Since ACM's first fund had closed in 1997, the investment environment had gone from robust to hysterical to deflated and now, finally, to what appeared to be a modest recovery. Likewise, ACM’s performance had been whipped about. Fund I was almost top-quartile, Fund II could return capital with a few breaks, and Fund III, a 2000 vintage fund was “too new to tell, “Adams noted (see Exhibit 1 for performance data). The firm had adopted its strategy in part to differentiate itself for potential LPs. But the partners also believed that the pure
FEBRUARY 1, 2006
FELDA HARDYMON JOSH LERNER ANN LEAMON
Adams Capital Management: Fund IV
Joel Adams, founder and general partner of Adams Capital Management (ACM), a $700 million early-stage venture capital firm investing in the information technology, networking infrastructure, and semiconductor industries, glanced up as his fellow general partners trooped into his office on a brisk December morning in 2005 for their annual retrospective and planning meeting. The main topic on the agenda was a new one, —would 2006 be the right time to launch their fourth fund? Since late 2000, ACM had been deploying its $420 million third fund, using its “markets first” strategy, an approach that identified and sought to take advantage of discontinuities within the three industry segments it targeted. Having invested in a company exploiting such a change, the general partners then guided the investment through a five-point structured navigation system. In November 2005, ACM III sold a portfolio company and made its first distribution to its limited partners (LPs). The fund’s portfolio also had 18 other operating companies that were showing steady growth, and two new investments were in the due diligence phase and preparing for final negotiations. “The question as I see it,” said Adams to his partners, “is whether we need to exit more companies and generate additional distributions to our LPs before we start raising ACM IV.” Since ACM's first fund had closed in 1997, the investment environment had gone from robust to hysterical to deflated and now, finally, to what appeared to be a modest recovery. Likewise, ACM’s performance had been whipped about. Fund I was almost top-quartile, Fund II could return capital with a few breaks, and Fund III, a 2000 vintage fund was “too new to tell, “Adams noted (see Exhibit 1 for performance data). The firm had adopted its strategy in part to differentiate itself for potential LPs. But the partners also believed that the pure