Octopus Future Generations VCT

Octopus Future Generations VCT launched in January 2022, with a focus on sustainability. It looks to invest across three core themes: building a sustainable planet, empowering people, and revitalising healthcare.

The VCT is managed by Octopus Ventures, a leading venture capital team and manager of VCTs including Octopus Titan VCT, the UK’s largest. Octopus Ventures has developed a reputation for backing some of the UK’s fastest-growing private technology companies, some of which have been acquired by the likes of Google, Microsoft and Amazon. 

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

As at 30 June 2023, the VCT had net assets of £45.4 million and a portfolio of 25 companies, with a further five new investments completed post year-end. Over the long term, the VCT aims to pay an annual dividend of 5%. However, dividend payments are only likely to start from 2025 at the earliest. Dividends are variable and not guaranteed. 

• Seeking to raise £15 million with £5 million overallotment facility
  
• Targeting annual dividend of 5% of NAV per share – from 2025, dividends are variable and not guaranteed
• Available for the 2023/24 tax year
• Minimum investment £3,000 – you can apply online
• Deadline: 27 January 2025 (5pm) for final allotment in the 2024/25 tax year 

The manager

Octopus Investments was launched in 2000. Today, the group has over 750 employees and manages £13.1 billion (September 2023) on behalf of over 63,000 retail investors, charities and institutions, including pension funds, fund-of-funds and family offices.

Octopus Ventures, a dedicated business unit in Octopus Group, is the VCT manager. It manages a total of over £1.8 billion across its funds, including Octopus’s VCTs and EIS funds, as well as several follow-on funds used to support companies once they outgrow the VCTs. Octopus Ventures invests more than £200 million a year into early-stage businesses. 

The team of 90+ is one of Europe’s largest early-stage investment teams, and a destination for early-stage entrepreneurs seeking funding. 

Alongside investment professionals, it also includes a talent team dedicated to helping portfolio companies hire the best people, as well as legal, operational, and administrative support. Before joining Octopus, many of the team were well-established in other industries, such as consumer goods, professional services, and technology. 

In February 2021, Octopus became a B Corporation (B Corp.) – joining a network of over 6,000 companies. B Corp. is a certification from an independent organisation that a company operates 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 – and will assess companies against both. It targets ambitious businesses with the potential to transform outdated industries for the better, while also demonstrating excellent growth prospects. 

Growth strategy

The VCT follows 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, companies will be subject to enhanced reporting requirements, allowing Octopus to measure progress against social and environmental goals as well as financial performance. 

Current portfolio overview

The VCT first issued shares in April 2022. It aims to build a portfolio of growth capital investments, split across its three sustainability themes. 

As at 30 June 2023, the VCT’s most recent year end, the VCT had net assets of £45.4 million. In total, the VCT has £24.9 million invested into 25 companies (a further five new investments were completed post year-end). Investors should note that it may take several years to establish a well-diversified portfolio. 

Investment portfolio by theme %

Examples of portfolio companies

Tympa Health – largest holding (revitalising healthcare)

Hearing loss is the second most common disability in the UK, with approximately 1 in 5 people affected. 

Despite its prevalence, hearing loss treatment is difficult both due to the gradual nature of the condition (meaning sufferers often delay seeking help) and the diagnosis process which can face wait times of up to one year in the UK. 

Tympa Health (“Tympa”) was launched to make ear and hearing care more easily accessible. Founded in 2017 by Dr. Krish Ramdoo (an ENT surgeon), it has developed its own diagnostic platform and training academy so a much broader range of healthcare professionals can carry out hearing assessments. 

The Tympa Platform allows patients to receive comprehensive hearing checks, all captured in a single record which can be shared between patients, providers, and specialists. 

Octopus Ventures led a $23 million Series A round in February 2023, with Octopus Future Generations VCT investing £2.7 million. The holding is currently valued at cost.

Cobee – recent investment (empowering people)

Pitched as the “all-in-one benefits platform”, Cobee makes it easier for companies to manage their benefit schemes.

With the average millennial changing jobs every few years, companies are under pressure to offer additional benefits to attract top talent. However, this means HR departments have to manage providers and track employee eligibility and usage. 

Through Cobee’s platform, companies can save time and money. They can manage all their schemes, customise benefit plans, offer flexible schemes, and add new benefits with just one click. Meanwhile, employees can access all their benefits and discounts using a single card.

Cobee’s current focus is on Spain and Portugal where it has over 800 customers including Ogilvy, Petronas, and Workday. It intends to expand into Latin America, starting with Mexico, as well as other countries in Southern Europe.

Octopus Ventures co-led the company’s €40 million Series B funding round alongside Notion Capital in November 2022. Existing investors including Balderton Capital, Speedinvest, and Dila Capital also participated. Octopus Future Generations VCT initially invested £1.9 million as a first tranche in November 2022 with a second tranche of £700,000 in March 2023. 

Exit track record

As this is a new VCT, it does not have an exit track record. However, the VCT will be investing in the same type of companies as Octopus Titan VCT, which has had several high-profile exits. 

Performance and dividends

As the VCT first issued shares in April 2022 its performance track record is limited. However, Octopus Ventures has a reputation for backing some of the UK’s fastest-growing private technology companies within its Octopus Titan VCT.

See the track record of Octopus Titan VCT. 

The VCT targets an annual dividend of 5% from 2025, dividends are variable and not guaranteed.

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. Since Octopus Future Generations began making investments, approximately c.70% of investments made by Octopus Titan VCT were also included within the Octopus Future Generations portfolio. 

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

Dividend Reinvestment Scheme

The VCT does not expect to pay a dividend until at least 2025. The company has adopted a Dividend Reinvestment Scheme under which shareholders can reinvest future dividend payments by way of subscription for new shares. 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. 

Share buybacks

The board intends to buy back shares at up to a 5% discount to the prevailing net asset value. This is not guaranteed and is not expected to be generally available before 2025 – please see the offer documents for details. 

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. 

Investors should note the VCT has less than a five-year track record. Trading of the VCTs shares will be immaterial and any consideration of the share price movements in relation to the net asset value per share will be inconclusive. The discount history will be published once the VCT has a five-year track record.

Investors looking to sell their VCT shares may get a better price using the VCT’s share buyback facility, although this is not guaranteed.

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.

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.

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.

Shareholders in any of the Octopus VCTs are eligible for the 1% existing investor discount.

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

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.

Deadlines

• Deadline for allotment in the 2024/25 tax year: 27 January 2025 (5pm)
  

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 has sourced, grown, 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’s 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 offers an opportunity to access a dedicated, sustainability-driven portfolio managed by one of Europe’s leading venture capital teams. 

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.