Share offer latest - Octopus Titan VCT
Archived article: please remember tax and investment rules and circumstances can change over time. This article reflects our views at the time of publication.
Update: Octopus Titan VCT’s 2017/18 share offer has now launched.
The article below is our review of the 2016/17 share offer.
Octopus Titan VCT's 2016/17 subscription offer seeks to raise £70 million for UK's largest venture capital trust, which has assets of approximately £309 million at the time of writing. The VCT launched in 2007 and has around 60 companies in the portfolio. It focuses on early-stage growth orientated businesses, which are by nature high risk.
- A mature and diversified portfolio of around 60 companies from established ones, such as Secret Escapes, SwiftKey, Calastone and Graze.com, to earlier-stage businesses
- The UK’s best-performing generalist VCT over the past five years with net asset total returns of 92.7% to date (discrete performance figures shown below). Past performance is not a guide to the future
- A history of exits – the latest, Zoopla, is the first £1 billion company to be backed by a VCT
- A track record of tax-free dividends – it aims to pay annual dividends of 5p per share (variable and not guaranteed). Since launch in 2007 it has paid total dividends of 61p per share
- Low minimum investment – just £3,000
- Up to 3.5% discount when you invest through Wealth Club
The Octopus Ventures team manages the Titan VCT. It is led by Alex Macpherson and Alan Wallace who founded it in 1999 and were subsequently bought by Octopus in 2008. In total Octopus manages over £5 billion of assets across a range of VCT, EIS and IHT products. As well as Messrs Wallace and Macpherson, there are 16 others in the team split between deal origination, portfolio management and exits.
Target return and strategy
There is a target dividend of 5 pence per share per year. Occasionally there might be special dividends, usually as a result of an exit or partial exit. Capital growth is also an aim. Indeed over the past five years the Octopus Titan VCT has been the UK's best-performing generalist VCT, delivering total returns of 92.7% to date (NAV cumulative total returns – see discrete performance below). Please remember, past performance is not a guide to the future.
This VCT unashamedly backs growth-orientated early-stage businesses. In most cases technology will represent an integral part of the offering. Investments are typically phased. The managers will start with an investment of as little as £150,000 in very small businesses, in some cases without revenue. They will only add to the original investment if the business proves successful. Overall the average investment per company is approximately £1.5 million. The strategy is not to bet the bank too early on a particular company.
An innovative aspect of the investment process is to test the idea of the business out on a 110-strong network of what Octopus calls its venture partners. These individuals pay Octopus an annual fee and are invited to invest alongside every deal on the same terms. It isn’t just cold hard cash Octopus wants; it wants investors in the network to add something to the underlying business and aid their development.
Each year the Titan VCT invests into between six and ten new companies, with the bulk of the money raised – approximately 75% – invested into existing portfolio companies.
Companies sought must be “tech enabled” with a strong management team, in a large market and have the ability to grow quickly. Tech enabled businesses exploit technology or technology trends, despite not being technology businesses. Examples are Secret Escapes, a digital travel business, or graze.com, which started out by offering snack boxes through an online subscription service. This type of business doesn’t normally need huge levels of capital to fund growth. Generally, Octopus Ventures invests in just the equity of the business and unlike other VCTs doesn’t lend money.
Whilst seeking new deals, money raised will be invested in a mix of different assets including cash, money market funds, gilts and other Octopus products.
In a meeting with Mr Wallace last year, he confirmed there is no predetermined exit strategy when buying into a business. If successful, the exit route would reveal itself. Looking at some of Octopus’s notable winners, the exit routes have been flotations, partial realisations, and trade sales.
Most of the realisations have been partial: Octopus has sold some of its shares in the business, but still retained a position. The manager is keen to stress they invest for five to eight years typically.
This is an early-stage growth VCT so some of the underlying companies will fail. In total, so far there have been 11 failures out of 64 companies invested in. These are generally longstanding investments of between five and eight years at least. Another risk is that as the performance hurdle has currently been met, 20% of future gains will automatically go to Octopus. The hurdle rate is reset at the end of each financial year assuming the NAV has increased.
There is an initial charge of 5.5% before Wealth Club discount of 2.5%. Existing Octopus investors can save another 1%. So the net initial charge could be as little as 2%.
The annual management fee is 2% and in addition Octopus is entitled to an annual administration fee of 0.3%. Annual running costs are capped at 3.2%. Octopus also receives deal arrangement fees of 1.5%.
A performance fee is also payable of 20% of any future gains, based on increasing total returns from this point – for full details please read the brochure.
Unless the offer is fully subscribed before these dates, the following deadlines apply:
- Deadline for shares allotted in the 2016/17 tax year: 5 April 2017 (12:00 noon)
- Closing date: 22 August 2017
The Octopus Ventures team is in our view the star of the Octopus stable. Led by Alex Macpherson, it has a long track record of investing in, nurturing and exiting companies profitably, although most realisations have been generally partial, in other words only a part of the holding has been sold. Invariably, there will be failures in earlier stage investments, but the winners have more than made up for this so far. This VCT has almost £100 million in cash to invest. Although the team is well resourced, this puts the pressure on to find exciting new businesses.
Discrete performance over five years: Octopus Titan VCT
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2 Mar 2013
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2 Mar 2014
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2 Mar 2015
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2 Mar 2016
| 2 Mar 2016-
2 Mar 2017
Octopus Titan VCT
Source: aic online (the Association of Investment Companies). Past performance is not a guide to the future, dividends are variable and not guaranteed.