Acorn Capital Partners is a registered investment advisor founded in 2013 and based in New York. We are a boutique asset management firm focused on identifying exceptional investment opportunities for individual investors in US equities with a market capitalization of $5 billion or less. We have developed and refined our approach to sourcing, evaluating and investing in this arena for the last 18 years and strive to provide high quality research and exceptional service.
Companies with a market capitalization of $5 billion or less can be divided into two categories, Microcap and Smidcap equities. Microcap equities are defined as companies with a market cap of zero to $300 million. Smidcap equities include small-cap companies and smaller mid-cap companies, defined as companies with a market cap of $300 million to $5 billion. We have a distinct strategy for sourcing and evaluating companies in each of these arenas.
Microcap equities are often ignored by large institutional investors on Wall Street due to their lack of liquidity and the resulting inability to have a meaningful impact on a manager's overall investment returns. As a manager's assets grow, it makes less economic sense to spend their time researching microcap stocks and they typically move on to larger, more liquid companies. As a result, the microcap arena tends to be the least efficient area of the stock market. We look for microcap stocks in an industry that we understand that trade at deep value prices based on standard valuation metrics and have a catalyst that can drive the stock price higher within the next 12-18 months.
There are a few large funds with exceptional track records that have remained in this space over the long term by choice. Due to the inherent illiquidity in these companies, these funds tend to make large, long term investments and sometimes force price appreciation through shareholder activism. Funds that manage in excess of $100 million are required to report their holdings on a quarterly basis by way of a 13f filing or through a 13d filing if they intend to become activists. We track the 13f filing and 13d filings of top performing microcap investment managers and use it as a mechanism to source investment opportunities to research on behalf of our clients.
Smidcap equities combine many of the attractive qualities of small companies (underflowed, deep value) with some of the more established attributes of larger companies (more liquidity, stronger cash flows, experienced management). We look for smidcap stocks in an industry we understand that have the potential to grow into large cap companies. We look for exceptional management with a proven track record of innovation and execution and a strategy that we understand and agree with. We prefer companies with a large addressable market and a scalable business model. We look for smidcap companies with a product or service whose competitive advantages increase as it becomes more widely adopted.
Thomas J. Horan is the owner and managing partner of Acorn Capital Partners. He has been in the investment business for 18 years and has spent most of that time researching and investing in small and underfollowed companies. His experience includes fundamental research, investment banking, venture capital, technical analysis and business management. He previously served as the general partner of Delphi Capital where he managed a microcap and smidcap focused fund of funds and worked alongside several top performing portfolio managers in the microcap and smidcap arena. Earlier in his career, he spent several years studying collective intelligence and chart analysis alongside the highest I.I. rated technical analyst on Wall Street. His goal at Acorn Capital Partners is to uncover exceptional investment opportunities on behalf of clients and provide assistance with entry and exit points using fundamental and technical analysis.