Octopus Titan VCT
Over a third of all the money raised by VCTs in the last tax year went into Octopus Titan VCT.
The VCT launched in 2007. Today, it’s the largest UK VCT and the eighth largest Venture Capital fund in Europe. It has £825 million of net assets and its portfolio includes more than 75 companies (June 2019).
Under the current offer, the VCT aims to raise up to £120 million (with a £50 million overallotment facility). If successful, this fundraise has the potential to make Octopus Titan VCT the first £1 billion VCT.
- Large and diversified VCT portfolio spanning maturing companies such as Secret Escapes and Calastone to earlier-stage businesses such as Depop and Cazoo
- Managed by one of the largest and most respected venture capital teams in Europe
- Aims to back pioneering opportunities with a specific interest in companies relating to health, money and industry
- History of high profile exits – including Zoopla, SwiftKey and Tails.com. Past performance is not a guide to the future and there have also been unsuccessful investments
- Annual dividend target of 5p per share – variable and not guaranteed – cumulative dividends of 74p paid since inception in 2007
- Choose between 2019/20 and/or 2020/21 tax years
- Minimum investment £3,000, you can apply online
- 0.25% annual rebate through Wealth Club, paid for three years
Read important documents and apply
Octopus was launched in 2000 from the front room of one of the three founders. Today it has over 750 employees and manages more than £8.6 billion (Jun 2019) across all Octopus Group businesses on behalf of 150,000+ private and institutional investors, including pension funds, asset managers, fund-of-funds and family offices.
Octopus Titan VCT is managed by Octopus Ventures, a dedicated business unit within the Octopus Group. With more than 40 people (including the Operating Partners), it is one of the largest venture capital teams in Europe. Before joining Octopus, many were well established in other industries, such as consumer goods, professional services and technology. Indeed, 53% of the investment team have previously founded or co-founded a business.
Octopus Ventures manages over £1.1 billion across its funds: the VCTs as well as a number of follow-on funds used to support investee companies once they outgrow the VCTs.
Most of the team is based in London, but a new office opened in New York in 2016, giving Octopus an international presence and facilitating the expansion of portfolio companies in the US. There are now also Operating Partners in San Francisco, Singapore and Shanghai.
Watch an exclusive video interview with Will Gibbs of Octopus Ventures:
Octopus Titan VCT launched in 2007. There were previously five Octopus Titan VCTs, which have now merged into one.
Since the beginning, it has backed growth-orientated early-stage businesses so, unlike other VCTs, it didn’t need to adjust its investment strategy following the introduction of stricter VCT rules.
When we interviewed the managers, they summed up their investment strategy by saying they aim to back “pioneers with global ambitions”. This means companies run by ambitious and talented teams, in large markets with global potential and able to grow quickly.
The focus is now on companies relating to health, money and industry. These three areas reflect where the fund has had previous success but also where the investment team feels there is an opportunity to develop a $1 billion business. Indeed, the manager will only consider opportunities it believes have the potential to achieve a 10x exit – remember though that with all venture capital investments they are also actively expecting some of the companies to fail.
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 a long-term and mutually profitable relationship.
As an example, in 2003 the investment team that would later become Octopus Ventures helped three entrepreneurs – William Reeve, Graham Bosher and Alex Chesterman – grow their merged online DVD company, which later became LoveFilm (acquired by Amazon for £200 million in 2011).
Since then Octopus has backed the same three entrepreneurs through five subsequent 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 (later Zoopla Property Group), then most recently second-hand car supermarket Cazoo. Today, Secret Escapes and Graze.com are still part of the Octopus Titan VCT portfolio; Cazoo is one of its newest investments.
Due to its size and position in the market, the Octopus Ventures team engages with thousands of businesses every year. In the 12 months to April 2019, it reviewed 1,100+ investment opportunities in detail and held 160 preliminary meetings. From these, it expects to make 10-15 new investments per year.
Exit track record
Octopus Titan VCT has realised a number of high-profile exits. Remember, past performance is not a guide to the future and there have been unsuccessful investments, too. The positive exits include:
- 2013: Partial exits from Zoopla, Calastone, Graze.com, Secret Escapes, alongside the sale of Evi to Amazon, helped the VCT pay a special dividend of 34p
- 2014: Google acquired Rangespan and Liquidnet acquired Vega-Chi
- 2016: Microsoft acquired SwiftKey for a reported $250 million; Twitter acquired Magic Pony for a reported $150 million; Essilor acquired Vision Direct for a undisclosed amount
- 2017: Zoopla fully exited from Titan’s Zenith Holding Company
- 2018: Graze.com fully exited from Zenith Holding company; Tails.com acquired by Nestlé Purina PetCare for an undisclosed amount
Tails.com – recent exit
Surrey-based Tails.com offers personalised dog food by post. The company uses an algorithm developed by vets, nutritionists and software engineers to develop a dog’s diet plan based on their breed, age, size and medical condition. Octopus Titan VCT made its first investment in Tails.com in 2013, the year it was founded, and a follow-on investment in 2015. By August 2017, Tails.com was one of the fastest-growing start-ups in the UK, feeding more than 70,000 dogs. In April 2018 Nestlé Purina PetCare acquired a majority stake for an undisclosed amount. Octopus Titan VCT realised a 10x return on the initial investment.
MIRACL – example of failure
As is to be expected, not all investments work out. MIRACL is one example. It was a cybersecurity company which provided open-source encryption libraries, security authentication, and an Infrastructure as a Service (IaaS) solution for the internet of things (the interconnection of everyday objects via the internet).
Octopus Titan VCT invested £17 million in total into the business.
MIRACL faced issues with its business model, the length of time it took to make sales and the unwillingness of potential customers to adopt new technology. This hindered MIRACL’s ability to raise further capital. By 2018 the company needed additional funds but could neither secure them nor find a buyer and was eventually placed into liquidation in January 2019. The valuation of the VCT’s holding in MIRACL had been adjusted to zero as at October 2018.
Current portfolio overview
The portfolio currently comprises over 75 companies across a number of sectors. The top 10 holdings include well-known businesses such as members-only travel club Secret Escapes, online furniture retailer Swoon Editions and social ecommerce app Depop.
In the 12 months to 30 April 2019, Titan invested £119 million in 57 companies: £43 million in 15 new investments and £76 million into 42 follow-on investments.
Octopus Titan had £312 million uninvested cash as at April 2019. Whilst this might seem a high amount, the manager believes it is an appropriate level to support the fund and its investment activities. It usually takes Octopus Titan VCT 12-18 months to deploy the funds raised through its offers.
The manager believes the optimum size for the portfolio is around 80 to 100 companies – a size it might achieve in the next 12 to 24 months at the current investment rate. At that level, diversification benefits are likely to be optimal and the uplift any successful companies contribute should statistically be enough to outweigh the negative impact of failures. This has been the case so far: whilst the typical industry failure rate for early-stage companies is around 55%, since launch the VCT has only exited 21% of the portfolio companies at a loss. This accounts for less than 15.5% of the money clients have invested. Of course, in future this might be different – investing in unquoted companies is, and remains, high risk.
Examples of portfolio companies
Secret Escapes is a free-to-join members-only travel website, which offers luxury hotel stays and holidays at up to 60% off. The deals range from UK country house hotel stays and city breaks to luxury getaways and long-haul holidays.
Launched in 2011, the company has more than 50 million members, employs 1,000 staff and operates in 22 countries.
According to the latest data available (2017) Secret Escapes posted a £14.7 million pre-tax loss on £73 million of sales, with gross bookings of £403 million.
Octopus began investing in Secret Escapes in 2011. Since then it has sold part of its holding, most recently in 2018. However, Octopus Titan VCT still has a direct holding valued at £37.6 million (Apr 2019) on an investment cost of £4.2 million. Secret Escapes is the portfolio’s second-largest holding.
Depop is a social shopping app: an online marketplace for vintage and unique fashion and lifestyle items you cannot find on the high street. Think of it as a niche eBay for the Instagram generation. Vendors post images of the items they want to sell. Unlike eBay, images of any sold items remain in the seller’s profile, creating a profile that, in time, can amass followers. Followers “like” and comment on products and can communicate with vendors. Usually, the more followers a seller has, the more popular their store will be.
Depop has reportedly 13 million users worldwide. The start-up estimates around a third of all 16-24 year-olds in the UK have used its app. Depop said its users made sales worth over $570m worth of sales (Depop takes a 10% commission). In 2019 Depop launched the app in the US, adding 5 million users, and opened physical stores in New York and Los Angeles.
Octopus Ventures led a $20 million Series B funding round and invested £5 million in January 2018, then followed on in 2019 with £1 million, taking part in a $62 million Series C round led by General Atlantic, a US-based investor. The most recent valuation for the holding is £16.4 million, making Depop the portfolio’s fifth-largest holding.
Cazoo – recent investment
Cazoo is the brainchild of Alex Chesterman, the founder of Zoopla.
The idea is to make the experience of buying a used car quick and hassle-free, much the same as buying anything else online. Customers will be able to place an order one day and have their car on their driveway just 48 hours later. Close to 8 million used cars are sold in the UK each year, and the market is estimated to be worth around £50 billion.
Despite not having launched yet, Cazoo has already attracted over £55 million in investment – £5 million through Octopus Titan VCT. Interestingly, three of the four main investors, Octopus Ventures, dmg ventures (the venture arm of DMGT plc) and Stride.VC previously also backed Zoopla.
Cazoo is expected to launch later in 2019.
A note on Zenith Holding Company Ltd
The third-largest holding in Octopus Titan VCT is Zenith Holding Company Limited. Zenith was created in 2013 to hold four portfolio companies, the growth of which Octopus considered might have otherwise jeopardised the VCTs’ qualifying status. These companies were Zoopla, Calastone, Secret Escapes and Nature Delivered (trading as Graze.com). Zenith still holds shares in Calastone.
Performance and dividends
There is a target dividend of 5p per share per year. Successful exits may potentially help fund occasional special dividends.
Since launch, the VCT has paid 74p per share in cumulative dividends. Please remember, past performance is not a guide to the future and dividends are variable and not guaranteed. Note the year-end for the VCT is changing which mean interim dividends are now due in November rather than August each year.
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.
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.
This is a large VCT – the UK’s largest. That has its advantages (for instance it is well resourced, influential and has efficiencies of scale) but some disadvantages too (the VCT will need to take significant stakes and its successful investments will need to really shine to have a significant impact on performance).
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.
|Full initial charge||5.5%|
|Early bird discount||—|
|Wealth Club initial saving||2.5%|
|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||up to 2%|
|Annual administration charge||up to 0.3%|
|Annual rebate from Wealth Club (for three years)||0.25%|
More detail on the charges
The following deadlines apply:
- Invest by 5pm on 5 March 2020 (cleared funds) for the next allotment, targeted for 11 March
- Invest by 12 noon on 5 April 2020 (cleared funds) for allotment in 2019/20 tax year.
Invest in an ISA
Octopus Titan VCT allows investment in an ISA, by transferring funds in existing ISAs from previous tax years. Octopus was the first VCT provider to offer this facility.
How does the Titan VCT ISA work in practice?
Let’s suppose you transfer £10,000 from your existing ISA into the Titan VCT ISA, which invests in the Octopus Titan VCT. If this year you have a tax bill of at least £3,000 after other reliefs and allowances, that £3,000 tax bill could reduce to zero, by virtue of your VCT investment. Please note, this is a simplified example. Furthermore, tax rules can change and benefits depend on circumstances.
Dividend Reinvestment Scheme
The Company has adopted a Dividend Reinvestment Scheme under which shareholders are given the opportunity to 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.
Shares buy-back policy
The VCT intends to buy back shares at up to a 5% discount to the prevailing net asset value. All buybacks are subject to the company having sufficient funds available and are at the discretion of the board. The discount to NAV is also inclusive of the broker fee charged by Panmure Gordon (the Company’s corporate broker) for facilitating the sale.
Annual rebate when you invest through Wealth Club
The Octopus Titan 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 0.25% of the Net Asset Value of the Offer Shares issued to you when you invest. Terms and conditions apply.
In our view, this is a strong offer.
Octopus Titan VCT has secured a string of exits through sales to the likes of Google, Amazon and Twitter, achieving an average return multiple of 18x across its profitable exits (it has had some failures too, as is to be expected).
It was also the first VCT to back a £1 billion company, Zoopla.
It has achieved this by consistently applying the same approach.
It finds companies with high growth potential, starts backing them at a very early stage, and supports them (often through successive investment rounds to build a meaningful stake) all the way to an exit.
The VCT now has a lot of money to invest so will have to ensure new deals are of the same quality as the old ones and it does not overpay for opportunities.
That said, the diversity and size of the portfolio should help. Someone investing in the current offer would get access to the whole portfolio of 75+ companies (more than any other VCT), which should mitigate some of the risks of investing in a naturally risky area. On the flipside, the fund is now very big and so potential investors should note that to generate significant returns, some of these companies will really have to shine.
Octopus Titan’s annual fees were reduced in 2018, which is welcome news for investors, although it’s worth noting there is effectively no hurdle on the performance fee.
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.
- Target dividend
- 5p per share
- Initial charge
- Initial saving via Wealth Club
- Net initial charge
- 3% (2% existing shareholders)
- Annual rebate
- Funds raised / sought
- £85.5 million / £120.0 million
- 5 Mar 2020 for next allotment