Octopus Future Generations VCT

Octopus Future Generations VCT is a new 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, four of which have since achieved ‘unicorn’ status (a valuation of $1+ billion). 

The Future Generations VCT aims to combine Octopus’s 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. 

As at 31 December 2022, the VCT had net assets of £39.1 million. In total, the VCT has £17.3 million invested in 18 companies (including four investments completed post year-end). 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. 

• Seeking to raise £30 million with £10 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

The manager

Octopus Investments was launched in 2000. Today, the group has over 750 employees and manages £13 billion (June 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 £1.9 billion across its funds, including Octopus’s VCTs and EIS funds, as well as several follow-on funds used to support investee companies once they. 

The c.90-strong Octopus Ventures team – expanded from 65 in the year to June 2022 – 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 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. 

Current portfolio overview

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

As at 31 December 2022, the VCT had net assets of £39.1 million. In total, the VCT has £17.3 million invested into 18 companies (including four investments 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

HelloSelf – largest holding (revitalising healthcare)

HelloSelf was founded by former marketing executive Charlie Wells after suffering a brain haemorrhage in his late 20s. During his rehab, Charlie became obsessed with ‘self optimisation’ and measuring his own brain’s performance. Based on this experience, Charlie set out to build a digital therapy platform to help others do the same: “understand their psychology and measure their selves, and then get personalised advice”.

HelloSelf matches users with the best therapist or coach for their specific needs. The platform has over 150 qualified psychologists, all of whom are BABCP accredited or HCPC registered. Sessions are supported by digital self-help tools, helping users achieve their aims faster. 

As well as being available direct to individuals, where therapy starts from £110 a session, the platform works with businesses and health insurers to provide services to their employees or customers. By April 2022, the company was on course to hit 10,000 clients a year, with a turnover just short of £10 million.

The Octopus Future Generations VCT invested £2.6 million in the business in January 2023.

Pivotal Future – recent investment (building a sustainable planet)

Nature is complex and difficult to measure. Changes in one area might affect habitats for miles downstream – but traditional methods of measurement are expensive, slow and not scaleable. At the same time, growing markets in carbon and biodiversity credits need better data to understand the full picture and value any improvements. 

Pivotal Future aims to address this. It uses drones, acoustic and image sensors to measure changes in biodiversity affordably, efficiently and at scale. The company also uses data collected by local recruits to help with species identification, and improve accuracy. The company claims its technologies can help reduce the cost of documenting site-level change by as much as 98%, allowing as few as 1,500 workers to annually assess 100 million hectares, 5% of the world’s total degraded land. 

Using Pivotal’s platform managers of biodiversity credit projects can track landscape changes, measure any gains created, and channel funds to areas showing positive impacts. This should increase the financial incentives for evidence of results – ultimately delivering significant benefits for the natural world. 

Octopus Future Generations invested £767,000 in the business in January 2023. In April 2023, Pivotal announced the appointment of Dr Ben Tregenna as its Chief Technology Officer. Dr Tregenna’s previous experience includes four years at the UN Environment Programme World Conservation Monitoring Centre (UNEP-WCMC), latterly as its Head of Digital Transformation.

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 this is a new VCT, there is no performance track record. 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 is targeting 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 55% of investments made by Octopus Titan VCT were also included within the Octopus Future Generations portfolio. 

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 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.

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, 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 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.

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’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.