Octopus Titan VCT

With net assets of £1.1 billion (June 2023) and a portfolio of 140 companies, Octopus Titan VCT is the largest VCT and one of Europe’s largest venture capital funds.

It is managed by Octopus Ventures, part of Octopus Group, and invests in technology companies operating across seven target sectors: fintech, health, deeptech, B2B software, consumer, biotech and climate.

In the 10 years to December 2023, the VCT has generated a NAV total return of 35.0% (2.6% over five years) including dividends. Past performance is not a guide to the future.

• Annual dividend target of 5% of NAV – variable and not guaranteed 
  
• Minimum investment: £3,000
  

The manager

Octopus Investments was launched in 2000. Today, the group has over 680 employees and manages £13 billion (June 2023) on behalf of over 63,000 retail investors, charities and institutions, including pension funds, fund-of-funds and family offices. 

Octopus Ventures, a dedicated business unit in Octopus Group, is the VCT manager. It manages a total of over £1.8 billion across its VCTs, EIS and follow-on funds that can support companies once they outgrow the VCTs. Across the range, Octopus Ventures invests more than £200 million a year into early-stage businesses. 

The 90+ strong Octopus Ventures team – expanded from 65 in the year to June 2022 – is one of Europe’s largest early-stage investment teams, and a destination for entrepreneurs seeking funding. 

Alongside investment professionals, it also includes a talent team dedicated to helping portfolio companies hire the best people, as well as provide legal, operational, and administrative support. Before joining Octopus, many of the team were well-established in other industries, such as consumer goods, professional services, and technology. 

Investment strategy

Since its inception, the VCT has backed early-stage tech companies with high-growth potential.

It seeks to invest in what it describes as “pioneers with global ambitions”, operating across seven broad themes: fintech, health, deep technology, consumer, climate, biotech and B2B software. The team is split into four subteams or “pods”, each focussed on one or two of the manager’s core themes, helping maintain focus and discipline. 

The team looks for companies developing innovative technologies in a fast-growing market. They will only consider opportunities they believe have the potential to achieve a 10x exit on the value of Titan’s initial investment – although some failures are also expected. 

The quality of a company’s management team is the most important driver of investment decisions. Octopus looks for “unusually talented” entrepreneurs, with whom it can build long-term and mutually beneficial relationships. Octopus believes the quality of entrepreneurs in Europe continues to improve as alumni of successful venture-backed European businesses are now setting up their own ventures. 

Longstanding close relationships with successful entrepreneurs are also an important source of deal flow. Octopus Ventures has backed some of its more successful founders repeatedly. For example, William Reeve, Graham Bosher and Alex Chesterman – originally backed at LoveFilm (acquired by Amazon for £200 million in 2011) – were subsequently supported through five other ventures. Mr Reeve was backed again at Secret Escapes; Mr Bosher at Graze.com and Tails.com; and Mr Chesterman at Zoopla, the first VCT-backed unicorn (a start-up that achieves a $1 billion valuation), then used-car supermarket Cazoo.

Due to its size and position in the market, the Octopus Ventures team engages with thousands of businesses every year. From these, it expects to make 20-30 new early-stage investments per year.

Portfolio overview

Octopus Titan VCT has net assets of £1.1 billion.

The trust holds a large and well diversified portfolio of 140 companies, spread across a variety of sectors (June 2023). 

Recently, in response to a more challenging environment, portfolio companies have started to focus on profitability rather than high growth. That said, 18% of the portfolio (by net assets) continues to grow revenues in excess of 100% per annum, 28% by more than 25%. Octopus Ventures believes around half of its portfolio is currently fully funded, 75% has more than 12 months of cash runway (June 2023).

Octopus Titan VCT holds cash and cash equivalents of £232.5 million, accounting for a little over 20% of net assets (June 2023). The manager believes this is an appropriate level of liquidity to support the VCT and its investment activities. 

In the six months to 30 June 2023, Titan invested £65.0 million: £42.3 million in 14 new investments and £22.7 million into 12 follow-on investments. 

The top 10 holdings account for 31.9% of the total net assets (June 2023).

Sector breakdown (%)

Examples of portfolio companies

ManyPets – largest holding

Co-founded by Stephen Mendel and Guy Farley in 2012, ManyPets (previously Bought By Many) began life as an insurance broker. Originally, it grouped people with similar insurance needs and negotiated better prices and a more appropriate or tailored cover with insurance companies.

In 2017, ManyPets launched its own branded pet insurance, which won several awards. Today, it insures over half a million pets globally, including in the US, where it launched in 2021.

In June 2021, Swedish investor EQT led a $350 million funding round which valued the business at $2 billion. In October 2022, ManyPets acquired Digital Edge Insurance Company from Munich Re, allowing ManyPets to underwrite insurance policies in 45 US states.

Octopus Titan VCT first invested in October 2016, and to date has invested £10.0 million. The holding is currently valued at £97.8 million, representing 9.3% of net assets (June 2023). Past performance is not a guide to the future.

Pear Bio – recent investment

Pear Bio has developed a new process for assessing the effectiveness of cancer treatments on individual tumours. By taking samples of tumours and breaking them down into smaller “micro-tumours” the company can test a wide range of possible treatments to see which could be most effective.

It’s hoped this will improve drug development, while also helping improve recovery rates in rare and under-researched cancers. 

So far, the company has tested new drugs on cells from 220 patients in partnership with pharmaceutical companies. Any cells left over are fed into the startup’s drug discovery efforts, so it can study them and find out why they didn't respond to treatment.

Octopus Titan first invested in May 2023 as part of an £11.2 million round. 

Exit track record

Over the 18 months to June 2023, the VCT has made 11 disposals, generating exit proceeds of £102.2 million. Most notable was the sale of Glofox in August 2022, a developer of fitness management software, generating a 3x realised return for the VCT, and a partial exit from Amplience (detailed below).

Amplience – recent partial exit

Amplience was founded by James Brooke in 2007. The company has developed a platform to help e-commerce retailers build and manage personalised shopping experiences that in turn help increase sales. 

Today the business has Dominos, Argos, Mulberry and L’Oreal amongst its clients. It is developing AI and machine learning tools to improve copywriting and digital asset selection and creation.

Amplience is a long-term position for Octopus Titan, which first invested in 2010. 12 years later, in March 2022, the company raised £77 million from Fairview Partners and Sixth Street Partners. Titan took the opportunity to sell a portion of its stake in the business. 

Despite that sale, Amplience is still Octopus Titan’s third largest holding, valued at £38.3 million versus a cost of £13.6 million. Past performance is not a guide to the future.

Whirli – example of previous failure 

As is to be expected, not all investments work out. Whirli is one such example. Whirli was a children’s toy subscription service allowing customers to borrow toys and swap them for others in return. It aimed to offer parents a cost-effective, lower-waste and lower-clutter way of providing their children with toys.

Octopus Titan VCT invested £3 million in December 2020 as part of a £4.2 million investment round. At the time, the company had over 4,000 subscribers which represented growth of almost 200% year-on-year. The company reported 100% growth post investment, but was unable to secure further capital in a muted fundraising environment for capital intensive, consumer product businesses. The company was placed into administration in May 2022. 

Performance and dividends 

In the 10 years to December 2023, Octopus Titan VCT has generated a NAV total return (including dividends) of 35.0% – past performance is not a guide to the future. In that period, it has paid 59.5p per share in cumulative dividends, equivalent to a yield of 62.5% of starting NAV. Dividends are variable and not guaranteed. 

Note, we show VCT returns over a five-year period as a minimum, where possible. Where a VCT has followed the same investment strategy for longer, we also show returns over 10 years.

Shorter-term performance has been challenging, with NAV total return of 2.6% in the five years to 31 December 2023. Several of the VCT’s investments have been marked down to reflect the falls across global stock markets. Cazoo, previously the VCT's largest holding, saw its share price fall by over 99% after listing on the New York Stock Exchange in 2021. The VCT’s holding in ManyPets has also been marked down significantly since 2021. The VCT reported a NAV total return of -23.5% in 2022 and a further -4.3% in 2023 – past performance is not a guide to the future. 

This fall has led the VCT to alter its dividend policy. The VCT now targets dividends of 5% of NAV (changed from 5p per share). This is a less generous target whilst NAV is below £1 per share, as it is currently, although successful exits may potentially help fund occasional special dividends.

NAV and cumulative dividends per share over five years (p)

Dividends paid per calendar year

Dividend Reinvestment Scheme (DRIS)

The VCT operates a dividend investment scheme that allows shareholders to reinvest future cash dividend payments in new shares if desired. As these are new shares they should be eligible for tax relief (you will need to claim this on your tax return or directly with HMRC) and the shares will count towards the VCT annual subscription limit. 

Share buyback policy

The VCT intends to buy back shares at up to a 5% discount to the prevailing NAV. This is not guaranteed – please see offer documents for details. The discount to NAV is also inclusive of the broker fee charged by Panmure Gordon (the Company’s corporate broker) for facilitating the sale. 

Discount history

VCT shares are traded on the London Stock Exchange. Similar to investment trusts, the share price can fluctuate and can be different from the VCT’s net asset value (NAV), i.e. the value of the VCT’s underlying investments. The difference between the share price of a VCT, and its net asset value per share, is called a discount.

Based on data from Morningstar, the discount to NAV as at 31 December 2023 was -5.44%. Over the previous five years the average discount to NAV was -5.94%.

The discount history is based on the closing share price of the VCT at the end of each month, divided by the latest net asset value at the time. Past performance is not a guide to the future. Investors looking to sell their VCT shares may get a better price using the VCTs’ share buyback facilities, although this is not guaranteed.

Risks: important

This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice. 

VCTs are high-risk so should only form part of a balanced portfolio and you should not invest money you cannot afford to lose. They also tend to be illiquid and hard to sell and value. Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks. 

To retain the tax benefits, VCTs should be held for at least five years. If you sell VCT shares and reinvest in new shares of the same VCT (including any mergers) within six months, tax relief can be restricted. Tax rules can change and benefits depend on circumstances.

Charges and savings

A summary of the main charges and savings is shown below. The net initial charge shown includes the Wealth Club saving and any early bird discount. The investment may have additional charges and expenses: please see the provider documents including the Key Information Document for more details, offer price and share allotment calculation methodology.

Please note, capacity – for the offer or any early bird savings – can be reached early, and we may not be notified of this by the VCT in real time.

Annual rebate when you invest through Wealth Club

The Octopus Titan VCT includes an annual rebate for Wealth Club investors, payable for the first three years. This is a rebate of our renewal commission and should be equivalent to a percentage (shown in the table above) of the net asset value of the offer shares issued to you when you invest. Terms and conditions apply.

Our view

By investing in Octopus Titan VCT, investors gain exposure to a well diversified portfolio of 140 companies, spread across seven core sectors. The investment strategy, to back high-growth early-stage businesses, is well reflected within the underlying portfolio. 

However, this area of the market was among the hardest hit in last year’s stock market sell off. Many of Octopus Titan’s investments are valued by reference to their publicly listed comparables, so their valuation decreased. This, combined with poor performance from former top holding Cazoo caused the VCT’s NAV to fall substantially over the last 18 months and led the team to change the VCT’s target dividend from 5p per share to 5% of NAV, an effective dividend cut at current NAV levels.

Despite current challenges, the manager remains confident in the operating performance of its portfolio companies. Octopus Ventures believes the portfolio is well placed to benefit as the impact of declining global stock markets fades, although this is not guaranteed.

That said, Octopus Ventures remains one of the best-resourced investment teams in the market, with a well rehearsed investment strategy and a long-term track record of identifying and backing some of the UK’s brightest entrepreneurs and fastest-growing private technology companies.

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.