Review: Octopus Titan VCT
Last tax year a staggering £120 million was invested in Octopus Titan VCT. Now Octopus Investments has announced an even more ambitious fundraising target: up to £200 million (£120 million, with a possible over-allotment facility of £80 million) – the largest of any VCT ever. That’s equivalent to over a third of the total raised last year by all VCTs combined.
At £425 million Octopus Titan is already the largest VCT by some measure.
What is the VCT’s investment strategy?
I think it’s fair to say Octopus Titan VCT is the quintessential VCT. Ever since it launched in 2007, it has been investing in precisely the kind of companies the VCT legislation was introduced to help: early-stage, entrepreneurial businesses.
A typical company will be young (usually pre-profit and in some cases pre-revenue), started by entrepreneurs with the vision and ability to make it a global success. The business, however, will already be up and running and have a proven product or service to offer, preferably with proprietary technology and visibility over future revenues and recurring income; it will have the potential to target large, typically global, markets and it will seem able to sustain its competitive advantage.
The managers only consider companies they believe have the potential to deliver returns of at least 10x the original investment over a relatively short period (5-8 years).
The portfolio holds 57 companies (as at 30 April 2017) operating in a variety of sectors but with a bias towards technology and tech-enabled companies.
Technology companies build hardware, software, algorithms or platforms. Tech-enabled companies use these technologies, usually to disrupt how a particular market is served.
They fit the investment mandate because they can be started and scaled up quickly and relatively inexpensively, compared to, for instance, a manufacturing business. They’re asset light and don’t normally require a large sales and distribution network.
Performance and dividends
As usual, the VCT’s returns come predominantly in the form of tax-free dividends. Back in 2014, Octopus Titan VCT declared its ambition to pay an annual dividend of 5p per share from the 2017 financial year. This ambition was in fact achieved one year earlier than planned. Please note dividends are variable and not guaranteed.
As at September 2017, Octopus Titan VCT has paid or announced cumulative dividends of 66p per share since launch, bringing the total value (NAV plus dividends) to 159.2p per share.
Someone who invested £5,000 in Octopus Titan VCT five years ago would now have benefitted from a total return of £8,335 – a 67% gain. Please remember, past performance is not a guide to the future.
Annual performance to April 2017 each year
|Octopus Titan VCT
(NAV Total Return)
Portfolio company examples
Secret Escapes Ltd is a members-only travel club. Users register as members with their email address free of charge and can then benefit from exclusive rates at luxury hotels and resorts around the world – from the Shangri-La Hotel at The Shard (at a 26% discount) to the Hyatt Regency in Dubai (at a 64% discount). There might be some 150 deals featured on the website at any one time, but each is only available for a limited period.
Founded in 2011, Secret Escapes now operates in nine countries across Europe and in the United States. It has reportedly sold nearly 2 million room nights and grown its membership to over 19 million worldwide.
Secret Escapes provides a great example of starting small and repeatedly investing further as a business proves itself. Octopus Ventures first invested in 2011. Subsequent investors include Google Ventures, the venture capital arm of Alphabet, Inc., which co-led an investment with Octopus Ventures totalling $60 million in 2015.
Octopus Titan VCT holds a direct stake in Secret Escapes and an indirect stake through its holding in Zenith Holding Company.
Secret Escapes in numbers
|Initial investment date||April 2011|
|Investment cost||£4.2 million|
|Valuation||£25.7 million (30 Apr 2017)|
|Last submitted accounts||31 Dec 2015|
|Profit/Loss before tax||£(21.5 million)|
|Net assets||£10.7 million|
Appear Here Ltd is one of Octopus Titan VCT's most recent investments. It is an online pop-up shop booking platform – an “Airbnb for retail”. Landlords with vacant premises advertise their space and business owners or brands can rent it for any length of time – from a couple of hours to over a year.
Appear Here simplifies the process for both parties: it has a simple two-page agreement and makes all charges transparent. It could take three to six months to rent a traditional retail space, but opening a pop-up store through Appear Here takes three to six days.
Founded in 2013, Appear Here takes advantage of the growing trend for pop-up stores. Traditional retail space is suffering – 15 shops close every day in the UK – but the pop-up sector is booming. It’s estimated to be worth £2.3 billion.
To date, more than 4,000 “exclusive spaces” have been listed and over 80,000 brands, including the likes of Nike, Loewe, Givenchy, Coca-Cola (pictured), Net-a-Porter, and a raft of independents have used Appear Here. After its UK success, it has now expanded to France and New York.
In May 2017 Appear Here received £3,814,000 from Octopus in series B funding to help expand internationally to top global retail cities, grow the executive team with key senior hires and build out the data science component of the platform.
The Octopus Titan VCTs have invested in over 70 businesses since inception. Of these, just 24% have been exited at a whole or partial loss. This equates to less than 14% of total capital invested.
So far positive realisations have been sufficient to compensate for the failures and some of them have been high profile, with portfolio companies sold to the likes of Amazon, Microsoft and Twitter. Please remember, though, past performance is not a guide to the future. Below we show a timeline of the VCT's exits.
Investing in early-stage companies can carry big
risks. These are long term and illiquid investments and capital is at risk.
Investors should not invest money they cannot afford to lose. That said, for
those comfortable with the risks of investing, there are potentially high
rewards and the tax benefits can be attractive, although remember tax rules can
change and benefits depend on circumstances.
Octopus Titan is the most popular VCT by a large margin. It has a good track record. The team behind it is competent and extremely well resourced. No other VCT has had the same level of success in spotting rising stars and supporting their growth to realise a successful sale to the likes of Amazon, Microsoft and Twitter. But of course, past performance is not a guide to the future.
Should you invest? That’s a question only you can answer. We believe anyone planning to invest in VCTs should at the very least add Octopus Titan VCT to their shortlist.
The new offer for the 2017/18 year is now open and you can apply online, exclusively through Wealth Club.
Wealth Club aims to highlight investments we believe have merit, but you should form your own view. You should decide based on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination. 07.09.2017