Robert R. Topping, CFA Topping Capital

Q: You refer to your investment model as “Freeform Investing”. Can you speak a bit to how that approach differs from other investment philosophies and how it informs your investments in early-stage companies?

A: Freeform investing is a model developed for the convergence of public and private markets and the ability to “go anywhere” to capture return and alpha. Having a perspective of, and history in, public markets gives one a better understanding of early stage investment opportunities. We use the stability and liquidity of hedge funds plus venture investments to create a lowly correlated portfolio with attributes of liquidity (funds) and multipliers (early stage VC).

Given the greater volatility and velocity of markets, it is important to not only have a structure not constrained to a style bucket, but also nimble and flexible enough to take advantage of opportunities presented in a timely manner. The first half of 2020 saw one of the swiftest and most dangerous bear markets in history only to be followed by one of the greatest rallies ever! Compartmentalizing risk and access to unique opportunities is the path to success.

Q: What’s the biggest area of improvement you’d like to see from founders and companies that pitch you?

A: Most founders are very concerned with the end outcome of post-money valuation. That figure is manipulable based on the amount of capital raise. I’d like to see more teams focus on the “clearing price”, or the equilibrium price for the equity being sold. If valuation is about how much equity one gives up you can control the same by how much money you raise. That is a much shorter path to raising capital allowing more time to focus on operations and the “build.”

Q: When you value a company, what metrics do you use?

A: The way I value a company is more of an art, as opposed to a science. Consequently, I don’t necessarily use standard “metrics” as much as looking at the size of the end opportunity. Companies have to solve a true “need” and not just a “want”. The distinction can be subtle, but it can be the difference in an incredibly successful startup and one that fazes out incredibly quickly. Another thing that I look at is the overall resiliency of the team. The whole startup life and fundraising process can be a slog, so being tenacious and resilient is very important.

Q: Are there any resources you’d recommend to founding teams?

A: One of the most important things that founders can do is network. LinkedIn is a great way to expand and reach out to your network of contacts. Also, depending on your company and the particular program, incubators or accelerators can be very valuable. You’ll want to look at the track record of the accelerators’ companies as well as the network of mentors and partners the program can offer.

Q: Is there anything else you want early stage companies to know?

A: Success is built upon a foundation of failure. If your company can pivot based upon failures and input received from feedback loops, you will be on track for long-term success. Your original business thesis will not likely be exactly what defines the success of your company, so try to keep an open mind and test this hypothesis often. Be adaptable and always #celebrate the micro successes in your business.

Learn more about Robert Topping and Topping Capital here.

Robert Topping, the “Father of Freeform Investing” has been actively involved in public and private markets for nearly 40 years. Through founding a hedge fund, forming the corporate structure of Topping Capital, and serving on the board of multiple companies through the years, Robert has a great amount of experience in the world of venture capital.