Octopus Ventures EIS Service

Best known for managing Octopus Titan VCT, Octopus Ventures is one of the UK’s leading venture capital teams, and one of the largest in Europe. 

It invests in some of the UK’s fastest-growing private technology companies. Its VCT track record includes backing four companies that have achieved ‘unicorn’ status (a valuation of $1+ billion) and achieving several high-profile exits with trade sales to the likes of Microsoft, Twitter and Amazon. 

Octopus Ventures launched its EIS service, Octopus Ventures EIS Service, in November 2020, to follow the same investment strategy as – and co-invest alongside – Octopus Titan VCT, the UK’s largest Venture Capital Trust.

Since then, Octopus Ventures has raised £56.5 million across its EIS funds – with £31.5 million raised by the Octopus Ventures EIS service and £25 million raised by the Octopus Ventures Knowledge Intensive EIS Fund. The EIS service has invested in 25 companies (January 2022). Investors can expect a portfolio of around 10-15 companies, including both new and follow-on investments (not guaranteed).

The EIS Service applies a success-based ongoing charging structure investors might find appealing.

Important: The information on this website is for experienced investors. It is not a personal recommendation to invest. If you’re unsure, please seek advice. Investments are for the long term. They are high risk and illiquid and can fall as well as rise in value: you could lose all the money you invest.

Read important documents and then apply

Highlights

  • Invest alongside one of the largest and most respected venture capital teams in Europe
  • A history of backing some of the UK’s fastest-growing private technology companies
  • Backs innovative technology companies it believes capable of delivering up to a 10x return on initial investment
  • Octopus has a history of achieving high-profile exits such as Zoopla, SwiftKey, Graze, and Tails.com (some failures, too)
  • Investors should expect a portfolio of around 10-15 companies (not guaranteed)
  • Success-based charging structure aligned with investors’ interests
  • Mix of new and follow-on investments
  • Minimum investment of £25,000, you can apply online

The manager

Octopus was launched in 2000 from the front room of one of its three founders. Today it has over 750 employees and manages more than £12.4 billion (December 2021) across all its businesses on behalf of over 63,000 retail investors, charities and institutions, including pension funds, fund-of-funds and family offices.

The EIS service is managed by the Octopus Ventures team, the same team responsible for Octopus Titan VCT. 

Octopus Ventures is a dedicated business unit in the Octopus Group. The 65-strong Ventures team is one of Europe’s largest early-stage investment teams. Before joining Octopus, many were well established in other industries, such as consumer goods, professional services and technology. In fact, approximately a third of the team has previously founded or co-founded a business.

The portfolio team at Octopus Ventures has continued to grow, with more than 10 investment professionals joining in the last year. Notably, Octopus recently announced the addition of three health-tech experts from TenX Health, to help boost its existing investment capability in the healthcare sector. Octopus Ventures has also invested in a dedicated talent team, to help portfolio companies hire the best talent.

Octopus Ventures manages over £1.8 billion across its funds, which include Octopus Titan VCT, Octopus Apollo VCT, and several follow-on funds used to support investee companies once they outgrow the VCT. The team invests more than £200 million annually into early-stage businesses.

Most of the team is based in London, but there is a New York office since 2016, giving Octopus an international presence and facilitating the expansion of portfolio companies in the US. There are also Operating Partners in San Francisco, Singapore and Shanghai. 

Octopus Ventures has divided its team into five “pods”, each dedicated to a specific theme to maintain focus and discipline. 

Meet the manager: Watch a video interview with Simon King of Octopus Ventures:

 

Investment strategy

The Octopus Ventures EIS Service follows the same investment strategy and co-invests alongside Octopus Titan VCT on new investments, as well as selected follow-on opportunities. 

The service aims to invest in high-growth early-stage companies, which are developing innovative technologies and operating in large and fast-growing markets. The team only considers making investments into businesses it believes can deliver returns of 10x on the initial investment (although the target return is lower for follow-on investments). Note, alongside the high expected return, the team also expects some of the investments to fail as these are high-risk growth businesses.

The EIS service will invest across five broad investment themes, defined by Octopus Ventures as fintech, health, deep tech, consumer, and B2B software. Each theme is overseen by a dedicated “pod” within the Octopus Ventures team. This helps maintain focus on each theme as the team and its assets under management grow.

The quality of the investee company’s management team remains the most important driver of investment decisions. Octopus looks for “unusually talented” entrepreneurs, with whom it can build long-term and mutually beneficial relationships. 

As an example, in 2003 the investment team that would later become Octopus Ventures backed three entrepreneurs – William Reeve, Graham Bosher and Alex Chesterman – who were founders of the merged online DVD company that later became LoveFilm (acquired by Amazon for nearly £200 million in 2011). 

Since then, Octopus has supported the same three entrepreneurs through five ventures. Mr Reeve was on the early board of Secret Escapes. Mr Bosher was behind Graze.com and Tails.com. Mr Chesterman went on to start Zoopla, Octopus Titan VCT’s first unicorn (a start-up that achieves a $1 billion valuation), then used-car supermarket Cazoo, which set the record for the fastest UK company to achieve unicorn status and later floated on NASDAQ via a $7 billion merger with a special purpose acquisition company (August 2021).

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 50 investments per year, of which 10-15 will be new investments. Investors in the Octopus Ventures EIS Service can expect exposure to around 10-15 investee companies comprising both new and follow-on investments (not guaranteed).

Target return

Whilst there isn’t a set target return, the EIS service aims to invest in companies that have the potential to achieve 10x on new investments (the target return is lower for follow-on investments) – high risk and not guaranteed. Some of the companies may fail.

Exit strategy

Octopus expects to hold investments for a period of five to 10 years. 

The EIS service launched in November 2020, so is yet to experience any exits. 

Recent profitable exits from Octopus Ventures include WavesOptics, which sold to Snap Inc in 2021 for $500 million, and Depop, detailed below. Other notable previous exits include Graze.com, Tails.com, Zoopla, and Secret Escapes.

Portfolio

Investors in the Octopus Ventures EIS Service can expect exposure to around 10-15 investee companies comprising both new and follow-on investments (not guaranteed). To date, the service has invested in 25 companies. 

The service will operate a series of tranches throughout the year. Once a tranche closes, Octopus will begin deploying investor capital. Deployment is anticipated to take six to twelve months, not guaranteed. Investors in the first two tranches were fully deployed within 4.5–6 months.

Whilst Octopus Ventures seeks to build a diversified portfolio for investors, there are no specific asset allocation targets for new or follow-on investments, nor sector or theme allocations. 

The companies outlined below are investments made by Octopus Ventures within its EIS service but are unlikely to form part of a new investor’s portfolio. They are outlined to give examples of the types of companies an investor might expect.

kleene.ai – Octopus Ventures EISKleene.ai – recent investment

The rise of cloud data warehouse providers, such as Snowflake, has fuelled a step-change in the computing power available to organisations to process and analyse large data sets. However, unlocking the value of this analysis can be prohibitively expensive, requiring specialist expertise. Kleene.ai is a cloud-based SaaS business that provides tools to extract, load and transform data without hiring data engineers. 

The company was founded by Andrew Thomas (CEO) and Matt Sawyer (CDO), pictured, who previously worked together at JustEat. The pair founded Kleene.ai after noticing organisations incurred large time and financial costs when preparing data from analysis. 

In November 2021, Octopus Ventures led a £10.3 million investment round into the business at a reported £26.9 million pre-money valuation alongside Episode 1, Superseed. 

BondAval – Octopus Ventures EISBondAval – recent investment

Inventory financing can be complicated and lengthy for independent retailers: it can tie up their working capital and put them at a disadvantage compared to larger corporates. 

InsurTech BondAval was set up in 2020 to address this and disrupt the $2.5 trillion global trade credit insurance market by helping independent retailers access better credit terms while providing assurance to suppliers they will be paid on time. 

BondAval has developed a new form of investment-grade B2B payment security: MicroBonds. Unlike traditional bank guarantees and collateral-based instruments, which can take months to secure, MicroBonds use a credit risk engine, don’t require collateral and are available almost instantly online and are backed by a leading insurer. 

In January 2021, the business received $1.64 million in early backing from a host of angel and venture capital investors. In October 2021, Octopus Ventures led a $7 million investment round alongside US-based venture investor Expa, founded by Uber co-founder Garrett Camp. Expa will work with BondAval to develop its business in the US and around the world. 

Octopus Titan VCT – depopDepop – example of recent exit

Founded in 2011, Depop began life as a social network that enabled readers of PIG (People in Groove) magazine to buy items from the young designers featured in the magazine. It has since developed into an online fashion marketplace in which users can buy, sell and discover unique fashion. By 2021, the business was reported to have over 30 million users globally, 90% of which are under the age of 26. 

Octopus Ventures invested through Octopus Titan VCT: first, £5 million in January 2018 at a £52 million post-money valuation, then £3.77 million follow-on funding in 2019. In June 2021, Depop was acquired by Etsy Inc. for $1.63 billion, generating proceeds of £97.4 million for the VCT, an 11.1x realised return. Past performance is not a guide to the future. 

Mush – example of previous failure

As is to be expected, not all investments work out. Mush is one example. After experiencing first-hand the difficulties of coping with newborn babies, the founders created Mush, a social app for mums to meet up with other mums in their local area.

Octopus Ventures invested £1.5 million into the business through Octopus Titan VCT in January 2018, as part of a £2 million investment round. At the time, the app had been downloaded by 300,000 mums in both UK and Australia. However, after the investment, the business was unable to generate the level of growth required to attract future funding and was eventually acquired by Mumsnet Inc in September 2021. The VCT received a nominal consideration for its stake in the business.

What are the main differences between Octopus Titan VCT and Octopus Ventures EIS Service?

VCTs and EIS have different structures and tax reliefs. Please note, the Octopus Titan VCT is not currently open for investment.

An investor in Octopus Titan VCT has exposure to the whole portfolio (currently around 90 companies) – a combination of older and new investments. The investor buys shares in the VCT, which invests in the portfolio companies. The VCT is expected to generate some of its returns via tax-free dividends, not guaranteed.

When investing in the Octopus Ventures EIS Service, an investor gets exposure to a much smaller (10-15) number of companies, which will receive investment after the tranche closes. The investor buys shares in the portfolio companies directly and those companies will all be early stage (rather than the mix of early and later stage businesses found in the VCT). Portfolios are likely to be different, depending on the tranche. 

This means the EIS portfolio is much more concentrated: any individual failures, as well as any individual successes, will have a greater impact on the portfolio than they do within the VCT. EIS returns also tend to come in the form of exit only. Put another way, with the EIS there is more risk of losing money, but the potential rewards could be greater and the available tax relief more generous: tax benefits can change and benefits depend on circumstances.

Performance

The EIS service started making its first investments in April 2021, so it does not yet have a performance track record spanning 12 months. 

However, Octopus Ventures has a reputation for backing some of the UK’s fastest-growing private technology companies.

Since launching Octopus Titan VCT, the team has had 55 exits, of which 22 were profitable. Of the 92 companies currently within the Octopus Titan VCT portfolio, 46 are held at a value above investment cost; 19 are held at investment cost, and 27 below investment cost (June 2021). Past performance is not a guide to the future – see track record of Octopus Titan VCT.

Risks – important

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

EIS investments are high-risk and should only form part of a balanced portfolio. As must be expected with early-stage investments, some or even all of the companies in the portfolio could fail: the fewer the companies included in the portfolio, the higher the risk of loss if things don’t go to plan. You should not invest money you cannot afford to lose.

There is no ready market for unlisted EIS shares: they are illiquid and hard to sell and value. There will need to be an “exit” for you to receive a realised return on your investment. Exits are likely to take considerably longer than the three-year minimum EIS holding period; equally, an exit within three years could impact tax relief.

To claim tax relief, you will need EIS3 certificates, normally issued once shares have been allotted. This can take several months: please check the deployment timescales carefully. Tax reliefs depend on the portfolio companies maintaining their EIS-qualifying status. Remember, tax rules can change and benefits depend on circumstances.

Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks. 

Charges

A summary of the main charges and savings is shown below. 

To align interests with those of investors, Octopus collects its annual management charge (AMC) but only when a profitable exit happens. Please note, this is applied on a per-company basis so if some companies succeed and others fail, fees may be payable, despite the portfolio losing money in aggregate. 

The performance fee should be an incentive to maximise value for investors on any exit. Exits could take five years or more and are not guaranteed.

The investment may have additional charges and expenses: please see the provider documents, for more details. You can also see an illustration of costs and charges after 8 years in the "more details on charges" section.

Investor charges
Full initial charge 5.5%
Wealth Club initial saving 0.5%
Net initial charge through Wealth Club 5%
Annual management charge 2%
Administration charge
Dealing charge 1%
Performance fee 20%
Investee company charges
Initial charge
Annual management charge
All fees and charges are stated exclusive of VAT, which may be applicable in some cases. Any fees and charges payable by the investee companies or the underlying businesses do not directly come out of your investment. However, they will effectively reduce the returns generated by investee companies and therefore impact your investment.

More detail on the charges

Timing of the offer

The service will operate a series of tranches throughout the year. Deployment is expected to take six to 12 months after each tranche closes.

Our view

The Octopus Ventures team has a long track record of backing some of the UK’s fastest-growing private technology companies. For private investors, gaining exposure to these companies has only previously been available via Octopus Titan VCT. The EIS service allows investors to build a more concentrated – and thereby riskier – exposure, but with the more generous EIS tax reliefs and the potential for greater rewards. 

Investors in the service benefit from the scale of Octopus Ventures, which now manages more than £1.8 billion. Its investment team has expanded accordingly, growing from 40 to 65 over the last year. 

The team is well structured around five specialist “pods” or sub-teams, each covering a specific sector. This should facilitate the deployment of increasing amounts of capital whilst maintaining the quality of its investment approach and meeting the challenge of identifying some of the most promising companies. Moreover, the scale of Octopus Ventures is likely to attract enhanced deal flow compared with other EIS offers.

The service comes with a success-based charging structure: the annual management charge with respect to each investee company (not the whole portfolio) only becomes payable if and when a profitable exit is achieved. 

The exposure to high-growth companies may appeal to wealthy investors seeking to complement a wider investment portfolio. The familiarity and similarity to Octopus Titan VCT may also appeal to experienced VCT investors considering more concentrated and higher-risk EIS investments.

Read important documents and then apply

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – tax-efficient investments. You should base your investment decision 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.

The details

Type
Fund
Sector
Technology
Target return
10x
Funds raised / sought
£6.1 million / £15.0 million
Minimum investment
£25,000
Deadline
Apply now for 2022/23 allotment
Last updated: 18 March 2022

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