Octopus Future Generations VCT

New VCT from the UK’s largest VCT manager

Octopus Future Generations VCT is a new VCT with a focus on sustainability. It looks to invest across three core themes: building a sustainable planet, empowering people, and revitalising healthcare.

The VCT will be managed by Octopus Ventures, a leading venture capital team and manager of Octopus Titan VCT, the UK’s largest VCT. Octopus Ventures has developed a reputation for backing some of the UK’s fastest-growing private technology companies, four of which have since achieved ‘unicorn’ status (a valuation of $1+ billion). 

The Future Generations VCT aims to combine Octopus’ experience as a growth investor with its belief that some of the best returns in the future will come from companies solving society’s biggest problems. 

Over the long term, the VCT aims to pay an annual dividend of 5%. However, given the expected holding period of portfolio companies, dividend payments are only likely to start from 2025 at the earliest. Dividends are variable and not guaranteed. 

The current offer is seeking to raise £20 million with an overallotment facility of up to £80 million. 

Update (17 Mar 2022): the board has decided to use £20 million of the 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 then apply

Highlights

  • New VCT from Octopus Ventures, the UK’s largest VCT manager
  • Sustainability-focused portfolio
  • Coinvest alongside Octopus Titan VCT and Octopus Ventures EIS
  • Managed by one of the largest and most respected venture capital teams in Europe
  • Targeting annual dividend of 5% of NAV per share – from 2025, not guaranteed
  • Available for the 2022/23 tax year
  • Minimum investment £3,000 – you can apply online
  • Octopus will donate 10% of its annual management charge to its charitable foundation, Octopus Giving

    The manager

    Octopus Investments was launched in 2000 from the front room of one of the three founders. Today it has over 750 employees and manages £11.3 billion (September 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. 

    Two-thirds of Octopus Group’s assets under management are invested with a focus on building a sustainable planet, empowering people, and revitalising healthcare, the three pillars of the VCT’s investment strategy.

    Octopus Future Generations VCT is managed by Octopus Ventures, a dedicated business unit in the Octopus Group, which 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 has added 25 individuals in the last year, so at its current count of 65, it is one of Europe’s largest early-stage investment teams, investing more than £200 million annually into early-stage businesses. It includes investment professionals as well as a talent team dedicated to helping portfolio companies hire the best people. Before joining Octopus, many of the team were well established in other industries, such as consumer goods, professional services and technology. Nearly a third previously founded or co-founded a business.

    Most of the team is based in London, but there is also a New York office, 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. 

    In April 2021, Octopus became a B Corporation (B Corp.) – the equivalent of a Fairtrade stamp for companies – joining a network of over 4,000 companies. B Corp. is a certification from an independent organisation that certifies companies are operating at the highest standards of social and environmental performance, accountability, and transparency. 

    Investment strategy 

    The Octopus Future Generations VCT aims to blend growth and sustainability. It targets ambitious businesses with the potential to transform outdated industries for the better, while also demonstrating excellent growth prospects. 

    Opportunities will be assessed for both growth and sustainability. 

    Growth strategy

    The VCT will follow the same mandate and selection process as Octopus Titan VCT, targeting companies developing innovative technologies and operating in large and fast-growing markets. The team only considers businesses it believes have the potential to deliver 10x on the initial investment – although these are high risk, so the team expects some to fail. 

    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.

    Due to its size and position in the market, the Octopus Ventures team engages with thousands of businesses every year and expects to invest in less than 1% of them.

    Sustainability strategy

    In addition, the Future Generations VCT will apply an extra layer of due diligence, assessing each opportunity against its three core themes: 

    • Building a sustainable planet: this might include businesses focusing on reducing carbon emissions, protecting ecosystems, and using the circular economy to reduce waste, for instance.
    • Revitalising healthcare: this might include businesses that are using digitisation and technology to make healthcare services more accessible and efficient. 
    • Empowering people: these businesses could range from the democratisation of education or financial services to the protection of online privacy and the improvement of connectivity between people.

    For a company to receive investment from the VCT it must demonstrate alignment to at least one theme. Furthermore, investee companies will be subject to enhanced reporting requirements, allowing Octopus to measure progress against social and environmental goals as well as financial performance. 

    Exit track record

    As this is a new VCT there is no track record within the trust. However, the VCT will be investing in the same type of companies as Octopus Titan VCT, which has had a number of high-profile exits. Past performance is not a guide to the future. 

    Current portfolio overview

    This is a new VCT, which aims to build a portfolio of growth capital investments, split across three sustainability themes. 

    Octopus Ventures expects to make between 10-15 investments within its first year, not guaranteed and depending on funds raised. So, it may take several years to establish a well diversified portfolio. The manager does not give a target portfolio size.

    While the VCT has yet to make an investment, below are details of three investments previously made by the Octopus Ventures team that would meet the sustainability criteria across each core theme.

    Examples of portfolio companies

    Elvie – Octopus Future Generations VCTElvie – empowering people

    Founded in 2013 by CEO Tania Boler, an internationally recognised women’s health expert, Elvie is a global health and lifestyle brand that develops products designed to improve the physical and emotional health of women. 

    Elvie’s first product – Elvie Trainer, a pelvic floor trainer – was launched in 2015. It won 12 awards for innovation and design and became widely recommended by health professionals worldwide to enhance pelvic floor muscle training. Its second product, Elvie Pump, the world’s first silent wearable breast pump, was launched at London Fashion Week in 2018.

    In 2019 the business raised £32 million in funding, breaking the record for the largest fundraise for a female-led “FemTech” company. In 2021, the business broke its own record, raising a further £70 million, as it seeks to expand the business into 10 new markets, including Spain, Germany, and China. The business believes it is on track to achieve $100 million in revenue this year. The business is currently valued in the region of £200 million. Past performance is not a guide to the future.

    Quit_Genius_Octopus Future Generations VCTQuit Genius – revitalising healthcare

    In the US it is estimated that 40% of all cancers are linked to tobacco consumption. The addiction claims millions of lives and huge sums of money – smoking costs the UK economy £19 billion a year.

    Founded by a group of three physicians in 2017, Quit Genius has developed the world’s first fully virtual clinic delivering a comprehensive Medication-Assisted Treatment programme targeting addictions to tobacco, alcohol, and opioids. The platform partners with employers and health plan providers to help individuals and those in the workplace battle and quit addiction. 

    The programme has a biochemically validated 52% successful quit rate after 28 days (compared with the gold standard of one-to-one therapy at 27%), and it has eight peer-reviewed studies supporting its best-in-class outcomes. 

    The business grew revenues tenfold over the last 12 months and is now partnered with 55 employer and health plans covering 2.1 million lives. 

    Quit Genius has raised a total of £56.9 million to date from investors including Octopus Ventures, Atomico, and Triple Point. 

    Most recently, the business raised a $64 million Series B funding round in July 2021. Whilst the valuation was not disclosed, it is estimated to be between €256 million and €384 million. The company’s near-term goal is to aggressively expand its provider network to cover the entire US population.

    Olio – Octopus Future Generations VCTOLIO – sustainable planet

    Roughly a third of all the world’s food goes to waste – equivalent to an area larger than China growing food that is never eaten. Furthermore, if food waste were a country, it would rank only behind the US and China in carbon emissions. This is due not only to emissions generated from food production and transportation worldwide but also the gases released by food as it rots. Cumulatively these factors account for 8-10% of greenhouse gases globally.

    To tackle the issue, founders Tessa Clarke and Saasha Celestial-One launched OLIO in 2015. The platform aims to eliminate food waste by connecting neighbours and individuals and helping them share surplus food, instead of it being thrown away. The model has also extended to businesses, including Sainsbury’s, Tesco, and Pret a Manger: OLIO collects surplus food from them and redistributes it to households in the community. 

    Since its launch, OLIO has grown from a small set of users in North London to a network of nearly 5 million across 60 countries, saving over 34 million portions of food. 

    Octopus Ventures first backed the company in 2018, leading its £6 million Series A round. More recently, it participated in OLIO’s $43 million Series B funding round, alongside other existing investors VNV Global and Lugard Road Capital. Building on the company’s rapid growth, the latest funding is expected to be used to target 10 key markets from Latin America to Asia and to scale OLIO’s team from 40 to 175+ in the next two years, not guaranteed.

    Performance and dividends

    The VCT is targeting an annual dividend of 5% from 2025. As this is a new VCT, there is no performance track record. 

    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 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 the track record of Octopus Titan VCT

    Please note: Octopus Titan VCT does not apply a sustainability filter to its investment selection process, so not all its portfolio companies would qualify for inclusion in the Octopus Future Generations 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. 

    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.

    As this is a new VCT it will take time to build a portfolio of investments, during this time the trust is likely to be more concentrated and no dividend payments are expected until at least 2025.

    The offer is conditional upon the minimum subscription (£3 million) being reached.

    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.

    Shareholders in any of the Octopus VCTs could be eligible for the 1% existing shareholder discount.

    Octopus will donate 10% of its annual management charge to its charitable foundation, Octopus Giving.

    Full initial charge 3%
    Early bird discount
    Wealth Club initial saving
    Existing shareholder discount 1%
    Net initial charge through Wealth Club (new investors) 3%
    Net initial charge through Wealth Club (existing shareholders) 2%
    Annual management charge 2%
    Annual administration charge 0.3%
    Performance fee 20%
    Annual rebate from Wealth Club (for three years) 0.10%

    More detail on the charges

    Deadlines

    • Final applications for 2022/23 tax year: January 2023

    Dividend Reinvestment Scheme

    The VCT does not expect to pay a dividend until at least 2025 due to the expected minimum holding period of portfolio companies. The company has adopted a Dividend Reinvestment Scheme under which shareholders can reinvest future dividend payments by way of subscription for new shares. Subject to a shareholder’s personal circumstances, shares subscribed for under the Dividend Reinvestment Scheme should benefit from VCT tax relief. 

    Share buybacks

    The VCT intends to offer a share buyback facility to investors from July 2025 – not guaranteed. 

    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. 

    As this is a new VCT, it doesn’t yet have a discount history.

    Annual rebate when you invest through Wealth Club

    The Octopus Future Generations 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

    This offer has several attractive features, in our view.

    Firstly, while this is a new mandate, the Octopus Ventures team has a long and strong track record of investing in ambitious, high-growth companies – a key focus of this VCT. Over the last two decades, the team sourced, grew, and exited some of the UK’s fastest-growing private technology businesses. 

    The VCT should also benefit from the wider resources of the Octopus Group and its network. Octopus’ reputation in the industry attracts a significant number of investment opportunities, in which the trust can invest alongside Octopus Titan VCT and Octopus Ventures EIS. All three funds are likely to co-invest, allowing the Future Generations VCT to access larger funding rounds not typically available to smaller, newer VCTs. 

    Finally, Future Generations is the first growth capital VCT to have a specific focus on sustainability. Sustainability is an increasingly important consideration, shaping consumer and business spending habits across the globe. Early-stage companies that can offer innovative solutions to address these issues could be well placed for the future. 

    For experienced investors, this is the first opportunity to access a dedicated, sustainability-driven portfolio managed by one of Europe’s leading venture capital teams. 

    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
    Sustainability focus
    Target dividend
    5% of NAV from 2025
    Initial charge
    3%
    Initial saving via Wealth Club
    Net initial charge
    3% (2% for existing shareholder)
    Annual rebate
    0.10%
    Funds raised / sought
    £32.9 million / £40.0 million
    Deadline
    Apply now for 2022/23 allotment
    Last updated: 31 January 2022

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