Octopus Apollo VCT

Octopus Apollo VCT initially launched in 2006 and has since merged with six other VCTs to create a large and diverse investment portfolio. Today, it has assets of more than £225.5 million and a portfolio of around 40 companies, making it one of the largest single VCTs available (July 2021). 

The VCT’s transition towards its new growth capital investment strategy is now well established. Since 2018, the VCT has focused on UK small and medium-sized software companies generating revenues of typically between £2 and £8 million, which have demonstrated strong revenue growth – although past performance is not a guide to the future. 

Currently, the growth portfolio represents 71% of Apollo’s invested assets and was the largest contributor to performance in the year to July 2021, with two companies recently achieving an exit. 70% of the trust is now invested in technology businesses (July 2021).

The VCT has declared an interim dividend of 1.3p per share and a special dividend of 3.1p per share, expected to be paid on 14 January 2022. Investors applying by 10 December are expected to qualify - not guaranteed.

The current offer is seeking to raise up to £40 million, with a £35 million overallotment facility.

Important: The information on this website is for experienced investors. It is not advice nor a research or 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, so you could get back less than you invest.

Read important documents and apply

Highlights

  • Large and diverse portfolio of c.40 companies
  • Managed by the largest VCT manager
  • Aims to invest in more established businesses than its stablemate, Octopus Titan VCT
  • Over 71% of the portfolio is now invested in new growth capital deals
  • Mixture of debt and equity
  • Targeting a regular annual dividend of 5% of NAV – not guaranteed
  • 0.10% annual rebate for three years when you invest through Wealth Club
  • Available for this tax year (2021/22) and next tax year (2022/23)
  • Minimum investment £5,000 – you can apply online

The manager

The VCT is managed by Octopus Ventures, the UK’s largest VCT manager. Octopus was launched in 2000 out of the front room of one of the three founders. Today it has more than 750 employees and manages £10.6 billion (June 2021) on behalf of over 63,000 retail investors, charities and institutions, including pension funds, fund-of-funds and family offices.

The development capital team, which was previously responsible for the VCT, is now part of Octopus Ventures, within its B2B Software team.

This change is not expected to impact the management of the Apollo VCT: despite moving under the same roof as its stablemate Octopus Titan, Octopus Apollo will continue to follow a differentiated investment strategy, but potentially benefit from increased deal flow and greater access to the resources of Octopus Ventures, such as its Talent Team, which works closely with each investee company. 

Octopus continues to invest in its team: over the last two years it has doubled headcount to 12 investment professionals. Richard Court, who heads up the team, joined Octopus in 2017. He has been investing in UK and international SMEs since 2006 and has experience in a number of roles within investment banking and private equity.

Investment strategy

The Octopus Apollo VCT launched in 2006 and seeks to back UK SMEs with investments of £2-£10 million via a mix of unsecured debt and equity. The team will focus on more commercialised businesses with a bias towards B2B software businesses. Investee companies should have revenues exceeding £1 million – typically range between £2 and £8 million in annual revenues – with a preference for recurring revenue. Businesses must have a proven proposition with evidence of significant revenue growth and a broad customer base. 

Previously, the VCT invested in more established and often already profitable companies as well as management buyouts (MBO) and renewable energy assets. However, following changes to the VCT rules in 2015, the Apollo team transitioned towards growth capital investments, a strategy that is now well under way. 

The investment team intends to steer clear of the startups favoured by its stablemate Octopus Titan VCT. Instead, Apollo looks to help companies reach profitability, with its investments usually put towards increasing sales and marketing efforts, or expansion into new locations or markets.

Exit track record

In the last financial year to January 2021, Octopus Apollo VCT disposed of four investments, resulting in two full and two partial exits, for total sale proceeds of £3.4 million, generating a realised gain of £0.9 million. The SimplyCook exit to Nestle in February 2021 is detailed below. Please note, past performance is not a guide to the future.

In the year to July 2021, the VCT also made significant progress in disposing of legacy assets, with total sale proceeds of £37 million over the period. 

SimplyCook – Octopus Apollo VCTSimplyCook – recent exit

SimplyCook is an innovative meal kit subscription service. It puts together recipe cards, pre-portioned spices and flavour pots developed by professional chefs and posts them to customers UK-wide – helping them cook tastier meals at home.

As it leaves out fresh ingredients, SimplyCook’s kits are less perishable and expensive than competing offerings – and are a potential value proposition for supermarkets. The company has already started working with Sainsbury’s and Waitrose. Since it was founded in 2014, the business has helped customers cook over 20 million recipes.

SimplyCook was acquired by Nestlé in February 2021 for an undisclosed amount (reportedly in the range of £20 million to £60 million). Octopus Apollo VCT first investment in December 2018 and held a significant stake. Past performance is not a guide to the future.

Spiralite – example of previous failure

As can be expected, not all investments worked out. One example is Spiralite.

Spiralite developed a patented air duct design for use in commercial property. Its specialist ducting was believed to be more effective in terms of airflow and energy efficiency compared to rival solutions. However, the business struggled to gain the required commercial traction and, despite further efforts to improve sales and external funding, the company was placed into administration in 2017 and the holding was written down to zero.

The investment had originally been made through Octopus Eclipse VCT and was inherited by Apollo when the two VCTs merged in 2016. The investment does not represent Apollo VCT’s own historic or current investment strategy.

Covid-19 impact

Prior to the Covid-19 outbreak, the VCT had a net asset value of 45.7p per share as at 31 January 2020. On 2 April 2020, the board reviewed the portfolio in detail and concluded the net asset value should be adjusted to 42.9p per share, a fall of 6.1%. The trust now appears to have fully recovered, since April 2020, the net asset value has risen to 51.0p after paying dividends of 3.6p over the period.

The board believes the portfolio’s resilience is due to its investment strategy that favours businesses with recurring revenue models. In addition, the portfolio has limited exposure to the most adversely affected sectors, such as hospitality, leisure, and consumer spending, and has a high level of cash on the balance sheet.

Current portfolio overview

Octopus Apollo VCT has net assets of £225.5 million (July 2021). The investment portfolio comprises around 40 companies with a mixture of legacy, co-investment and new growth capital deals, which currently account for 71% of invested assets. 

The largest sector in the portfolio is now technology at 70%. This is in stark contrast to previous years, where the largest sector was Apollo’s energy investments (28% in January 2019, less than 2% in July 2021) which historically acted as a drag on portfolio performance.

Asset type breakdown

Source: Octopus Investments. Based on invested assets, as at July 2021.

Sector breakdown

Source: Octopus Investments. Based on invested assets, as at July 2021.

Example portfolio companies

Natterbox – Octopus Apollo VCTNatterbox (largest investment)

Established in 2010, Natterbox is a cloud-based telephony system that provides solutions to common call centre problems.

By operating through a cloud-based system, Natterbox removes the need for expensive IT and phone infrastructure allowing businesses to easily scale without upgrading servers. The software can also integrate into most Client Relationship Management (CRM) programs, enabling automatic call capturing and information recording.

For the VCT’s investment team, this is a great example of the type of company it targets. The business is growing fast, it has a strong management team and a relatively consistent recurring revenue base.

Octopus Apollo VCT first invested £5 million in March 2018 to support sales and product development. Since then, the company’s revenues have grown considerably, its US business is reported to be growing strongly, with revenues up 253% year-on-year in H1 2021 – past performance is not a guide to the future. In addition, Natterbox is now in the top 1% of all apps on the Salesforce AppExchange. 

The VCT has invested a total of £15.5 million into the business, it is currently valued at £24.3 million and accounts for 10.8% of the net assets of the VCT (July 2021). 

Turtl – Octopus Apollo VCTTurtl (recent investment)

Turtl has developed a patent-pending, cloud-based platform that applies psychological principles on how we read and retain information to help companies create, personalise and measure interactive digital content.

The platform can be used to create any digital content, from whitepapers, to reports, proposals, newsletters, handbooks, and more, as a more engaging alternative to static PDFs.

An independent research study found that, compared to Turtl, PDFs lose out on 90% of reader engagement. By contrast, the company claims that Turtl customers have seen 7x more engagement with their business materials. 

Turtl’s clients range from Cisco to Lexus, Standard Life, Allianz Global Investors and The Economist. The company has offices in London and Boston – despite having just 10% of its staff based in the US to date, Turtl has grown the US business to account for 60% of revenue. 

Turtl had originally been identified by the Titan investment team, however, as a more established business, the team decided Apollo’s mandate was a better fit for the company. The investment of £10 million represents Apollo’s largest ‘day one’ commitment to date.

Performance and dividends

Over the five years to 30 June 2021, the VCT generated a NAV total return (including dividends) of 23.1% – past performance is not a guide to the future.

Octopus Apollo VCT has proved resilient during the pandemic. In January 2020 the VCT reported a net asset value per share of 45.7p, which was marked down to 42.9p in April 2020 in response to the coronavirus outbreak. The trust now appears to have fully recovered: since April 2020, the net asset value has risen to 51.0p after paying dividends of 3.6p over the period.  

The VCT’s new growth capital investments have made a material contribution to performance in the year to July 2021. The new growth capital portfolio accounted for £23 million of the total £43 million of gains before costs. 

There is a target annual dividend yield of 5% of Net Asset Value, not guaranteed. Over the last five years to June 2021, the VCT has paid total dividends per share of 43.9p, equivalent to a cumulative dividend yield of 82.96% based on the average monthly NAV of the VCT over the period – dividends are variable and not guaranteed.

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

Source: Morningstar. Past performance is no guide to the future. Dividends are variable and not guaranteed. The bar chart shows net asset value and cumulative dividends per share for the period 31 Dec 2015 – 30 June 2021.

Dividend payments in the calendar year

Source: Octopus Investments, to 30 June 2021. Past performance is not a guide to the future. Dividends are not guaranteed.

Average dividend yield (% of NAV) history

Calendar year Dividend as % of NAV
2016 27.34%
2017 23.11%
2018 6.33%
2019 6.55%
2020 5.15%
YTD 0%

Source: Morningstar. Average dividend yields are based on the dividends paid over the period divided by the monthly average NAV of the VCT over the same period. Past performance is no guide to the future.

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.

VCTs can now only invest new money in growth capital deals. Management buyouts, replacement capital deals and investments in mature companies are no longer permitted. This results in considerably higher risks.

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.

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.

Full initial charge 5.5%
Early bird discount 2%
Wealth Club initial saving 2.5%
Existing shareholder discount 1%
Net initial charge through Wealth Club (new investors) 1%
Net initial charge through Wealth Club (existing shareholders) 0%
Annual management charge 2%
Annual administration charge 0.3%
Performance fee 20%
Annual rebate from Wealth Club 0.10%

More detail on the charges

Deadlines

  • Deadline for early bird saving of 2%: 29 October 2021
  • Deadline for early bird saving of 1% and planned dividends of 1.3p and 3.1p: 10 December 2021
  • Deadline for receipt of applications for final allotment in 2021/22 tax year: 5 April 2022 (noon)
  • Deadline for receipt of applications for final allotment in 2022/23 tax year: 29 September 2022 (noon)

Share buybacks

The board intends to buy back shares at up to a 5% discount to the prevailing net asset value. This is subject to availability and board and shareholder approval. Please see the offer documents for details.

Dividend Reinvestment Scheme (DRIS)

There is a Dividend Reinvestment Scheme under which allows shareholders to reinvest future dividend payments by way of subscription for 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.

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.

The charts show the five-year discount to net asset value history of Octopus Apollo VCT based on the closing share price 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 VCT’s share buyback facility, although this is not guaranteed.

5 year discount to NAV history

Morningstar, 30 June 2021. Discount is the closing share price at the end of each month, divided by the latest net asset value at the time. Rolling 12 month average is this figure averaged over the year.

Annual rebate

Octopus Apollo 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 0.10% of the Net Asset Value of the Offer Shares issued to you when you invest. Terms and conditions apply.

Our view

With assets of more than £225.5 million and a portfolio of around companies, Octopus Apollo VCT is one of the largest single venture capital trusts.

The transition of the portfolio appears well established. Poorly performing energy assets now account for less than 2% of the portfolio (July 2021), whilst 70% of Apollo’s invested assets are in new growth capital investments, which have begun to contribute materially to the performance of the VCT. The new strategy also achieved its first two exits in 2019 and 2021. 

In 2021, the Octopus Apollo investment team made the move across from Octopus Investments to Octopus Ventures, becoming part of the B2B Software sub team within the wider Octopus Ventures investment team. This provides the portfolio companies with access to Octopus Ventures resources, such as its talent team, and provides the potential for enhanced deal flow. The move strengthens the appeal of the VCT, in our view.

Octopus Apollo VCT is differentiated from Octopus Titan VCT, as it aims to invest in more established small and medium-sized software businesses. The VCT may provide valuable diversification within a wider VCT investment portfolio.

Read important documents and 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
Generalist
Target dividend
5% of NAV
Initial charge
5.5%
Initial saving via Wealth Club
4.5% (5.5% existing shareholders)
Net initial charge
1% (0% existing shareholders)
Annual rebate
0.10%
Funds raised / sought
£28.5 million / £40.0 million
Deadline
29 Oct 2021 for early bird saving
Last updated: 30 September 2021

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