Octopus Titan VCT

2p dividend declared – deadline for applications 20 November

Octopus Titan VCT is the UK’s largest VCT and one of the largest Venture Capital funds in Europe – it received one fifth of all the money raised by VCTs in the last tax year. 

The VCT is managed by Octopus Ventures, whose 40-strong team seeks to invest in technology companies operating across five broad themes: the future of money, the future of health, deep technology, consumer, and growth. 

The VCT’s diversified portfolio comprises more than 80 companies, including some of the UK’s fastest-growing private technology businesses. In 2020, one of its recent investments, used-car supermarket Cazoo, became the fastest-ever British unicorn, having achieved a $1bn valuation in 18 months. Previously, Titan also invested in Zoopla, the first VCT-backed unicorn. Cazoo and Zoopla are both founded by the same entrepreneur. 

The portfolio has shown some resilience throughout the Covid-19 crisis. 58 of its investee companies are expected to grow revenues in 2020, of which 38 by more than 50%. Longer term, over the ten years to September 2020 Octopus Titan VCT has generated a NAV total return of 121.4%. Please note past performance is not a guide to the future.

The VCT has net assets of £906 million. The current offer is seeking to raise £80 million with an overallotment facility of £40 million.

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.

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Highlights

  • Large and diversified VCT portfolio, from maturing companies such as Amplience and Calastone to earlier-stage businesses such as Quit Genius and Cazoo
  • Managed by one of the largest and most respected venture capital teams in Europe
  • Aims to back pioneering opportunities the manager believes could deliver at least 10x return on initial investment – not guaranteed
  • History of high profile exits – including Zoopla, SwiftKey, Graze 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 77p paid in the 10 years to September 2020
  • 0.25% annual rebate through Wealth Club, paid for three years
  • Available for this tax year (2020/21) and next (2021/22)
  • Early bird discount of 1% – application deadline 15 December 2020
  • Minimum investment £3,000 – you can apply online

The manager

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 £9 billion (Jun 2020) across all its businesses on behalf of over 55,000 retail investors, charities and institutions, including pension funds, fund-of-funds and family offices.

Octopus Titan VCT is managed by Octopus Ventures, a dedicated business unit in the Octopus Group. The 40-strong Ventures team is one of Europe’s largest early-stage investment teams. Before joining Octopus, many were well established in other industries, such as consumer goods, professional services and technology. In fact, approximately half of the team has previously founded or co-founded a business.

The portfolio team at Octopus Ventures has grown by 45% since September with nine new investment professionals joining. The team includes investment professionals and a talent team dedicated to helping portfolio companies hire the best talent.

Octopus Ventures manages over £1.3 billion across its funds which includes the VCT as well as a number of follow-on funds used to support investee companies once they outgrow the VCT.

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 also Operating Partners in San Francisco, Singapore and Shanghai. Octopus Ventures has divided its team into five “pods”, each dedicated to a specific theme to keep focus on each theme as the team and its assets under management grow. 

Investment strategy

Since its inception, the VCT has backed high growth early-stage technology businesses. This meant that, unlike some other VCTs, it did not need to adjust its investment strategy following the introduction of stricter VCT rules in 2015. The VCT seeks to invest in what it defines as “pioneers with global ambitions” operating across five broad themes, each the responsibility of one sub-team. 

Overall, the team looks for companies developing innovative technologies operating in a fast-growing market. The team will only consider opportunities it believes they have the potential to achieve a 10x exit on the value of Titan’s initial investment – remember though, as with all venture capital investments the team also expects some of the companies 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. 

As an example, in 2003 the investment team that would later become Octopus Ventures backed three entrepreneurs – William Reeve, Graham Bosher and Alex Chesterman – who were founders of the merged online DVD company that later became LoveFilm (acquired by Amazon for £200 million in 2011). 

Since then Octopus has supported the same three entrepreneurs through five 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, Titan’s first unicorn (a start-up that achieves a $1 billion valuation), then used-car supermarket Cazoo, which set the record for the fastest UK-based company to achieve unicorn status.

Due to its size and position in the market, the Octopus Ventures team engages with thousands of businesses every year. From these, it expects to make at least 10–15 new investments per year. 

Exit track record

Octopus Titan VCT has had a number of high-profile exits. Remember, past performance is not a guide to the future and there have been unsuccessful investments, too. Notable 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 an undisclosed amount 
  • 2017: Zoopla fully exited from Titan’s Zenith Holding Company
  • 2018: Tails.com acquired by Nestlé Purina PetCare for an undisclosed amount 
  • 2019: Graze.com from Zenith Holding company (a Titan holding) to Unilever; Zynstra (valued at £100m upon exit) to NCR Corporation 
  • 2020: We Got Pop sold to Entertainment Partners; UltraSoc sold to Siemens in July

Zynstra – Octopus Titan VCTZynstra – a recent exit

Zynstra provides small and medium enterprises with a combination of on-site hardware and cloud-based software that offers automated anti-virus monitoring and updates, data storage, and disaster recovery. 

Octopus Titan made its first investment into Zynstra in 2013 and participated in all of its subsequent funding rounds. In December 2019, Zynstra was acquired by US enterprise technology provide NCR Corporation for £100 million. Octopus Titan VCT yielded proceeds of £23.9 million against a total cost of £8.9 million.

MIRACL – example of previous 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.

Covid-19 impact

As is to be expected, some investee companies have been affected by Covid-19, Secret Escapes being one example. In aggregate, in the six months to 30 June 2020, 24 investee companies saw a total decrease in value of £70.7 million. Conversely, many of Titan’s other investee companies have thrived in the current environment. 33 investee companies have collectively driven an uplift in value of £55.0 million. In particular, Chiaro, Depop, Bought By Many and Streetbees have achieved increases in value.

During the six months to June 2020, the net asset value per share of the VCT fell from 95.2p to 89.5p and the VCT has paid a dividend of 3.0p, resulting in a NAV Total return of -2.8%. Titan released an additional NAV update on 20 October of 91.1p, which is a NAV Total Return of -1.1% since December 2019. Past performance is not a guide to the future.

Octopus Ventures team believes both the VCT and its investee companies are in a resilient position. It believes 74% of the portfolio is funded until at least August 2021, and many of its investee companies continue to experience rapid growth. 38 investee companies are forecast to grow revenues at greater than 50% for 2020. Examples include Patch, the online plant delivery service, which has more than tripled its revenues over the past year, and Depop, the global fashion market place, which now has over 24 million users globally. 

Following a successful fundraising in 2019/20 tax year, Octopus Titan has £237 million in uninvested cash (June 2020). This gives the VCT confidence it can support its investee companies in the short and medium term, whilst continuing to make new investments.

Current portfolio overview

Octopus Titan has net assets of £906.2 million and its portfolio comprises over 80 companies across a number of sectors (June 2020).

The high number of portfolio companies adds diversification, which could help mitigate risk. However, combined with the overall size of the VCT, it also means any new investment will really have to shine to have a material impact on the performance of the VCT.

Total revenues across the portfolio have increased significantly in the year to 2019, growing by 43%, which has helped to create an additional 1,300 new jobs. Growth continued in 2020, despite the Covid-19 crisis, with 38 companies forecast to grow revenue by 50% or more in the year.

£237 million of the VCT’s assets is uninvested cash (June 2020). Whilst this may seem high, the manager believes it is an appropriate level to support the fund and its investment activities. It usually takes Octopus Titan VCT 12 to 18 months to deploy funds raised through its offers. 

In the six months to 30 June 2020, Titan invested £53 million in 22 companies: £23.2 million in six new investments and £29.6 million into 16 follow-on investments. 

The top 10 holdings include well known businesses such as members-only travel club Secret Escapes, social ecommerce app Depop, and used-car supermarket Cazoo. The top 10 holdings account for £263 million – 29% of the total net assets (June 2020).

Source: Octopus Investments, June 2020.

Examples of portfolio companies

Taxscouts – Octopus Titan VCTTaxScouts – recent investment

TaxScouts, the trading name of Positron Technologies Ltd, is an online tax preparation platform, which combines automation with a human touch. The admin part of tax preparation is as automated as possible, but then the platform connects users with a certified accountant who takes care of the entire tax filing process for them for a single flat fixed fee.

TaxScouts was founded by Mart Abramov, Daniel Karger, and Kaupo Kõrv, who have led product, engineering and design at companies undergoing rapid growth such as Transferwise, Marketfinance, Intuit UK, and Skype. TaxScouts now has over 1,110 reviews on Trustpilot, 91% of these scoring 5 stars. 

Octopus Ventures led the £5 million series A investment round into the company, investing £4 million alongside co-investors such as SeedCamp, and US fintech investor Clocktower Technology. TaxScouts intends to use the proceeds to fund expansion into Europe, with Spain first on its list. 

Cazoo – Octopus Titan VCTCazoo – a top ten holding

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 any other goods online. Customers can place an order one day and have their car on their driveway 72 hours later. 

Cazoo launched in December 2019. In its first three months of trading, it generated revenue of £20 million.By June 2020, it reported revenues of £40 million. The business attracted £80 million of investment pre-launch (£5 million of which was through Octopus Titan VCT). Post-launch, Cazoo has raised an additional £285 million across three further rounds, the most recent of which, in October 2020, reportedly valued the business at over £2 billion. Cazoo is a top 10 position within the VCT as at June 2020.

A note on Zenith Holding Company Ltd

The second-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 and Secret Escapes. 

Performance and dividends 

There is a target dividend of 5p per share per year. Successful exits may potentially help fund occasional special dividends. 

Over the last ten years to September 2020, the VCT has paid a cumulative 77p per share in dividends. Please remember, past performance is not a guide to the future. The VCT has declared a dividend of 2p per share expected to be paid on 11 December 2020 to shareholders on the register as at 27 November 2020. Dividends are variable and not guaranteed. 

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 2014 to 30 Sep 2020.
Source: Morningstar. Past performance is no guide to the future. Dividends are variable and not guaranteed. The bar chart shows dividend per share paid in each calendar year. YTD is to September 2020.

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. 

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.

Full initial charge 5.5%
Early bird discount 1%
Wealth Club initial saving 2.5%
Existing shareholder discount 1%
Net initial charge through Wealth Club (new investors) 2%
Net initial charge through Wealth Club (existing shareholders) 1%
Annual management charge 2%
Annual administration charge From 0.3% (more details below)
Performance fee 20%
Annual rebate from Wealth Club (for three years) 0.25%

More detail on the charges

Deadlines

  • 2p declared dividend: the VCT has declared a dividend of 2p per share expected to be paid on 11 December 2020 to shareholders on the register as at 27 November 2020. The application deadline (cleared funds) is 20 November
  • 1% early bird saving: application deadline (cleared funds) is 15 December 2020 – allotment planned on 18 December 2020
  • 2020/21 tax year: application deadline 1 April 2021 – allotment planned by 5 April 2021

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. 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 buyback 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.

Our view

The Octopus Titan VCT provides investors with exposure to a portfolio of some of the UK’s fastest-growing private technology companies. 38 of the companies within the portfolio are expected to grow revenues by more than 50% in 2020, whilst 26 of these are expected to more than double revenues, although remember these are estimates and not guaranteed. This exposure to high-growth companies may appeal to wealthy investors seeking to complement a wider investment portfolio. 

Octopus Ventures has a good track record in identifying and backing some of the brightest entrepreneurs in the country, such as Alex Chesterman OBE. The VCT has now funded three ventures alongside Alex, two of which grew to become worth in excess of $1 billion.

As the VCT has increased in size – both in terms of the number of portfolio companies and assets – over the years, the investment team has expanded accordingly (by 45% since September). For instance, it has recently added nine professionals and created five sub-teams (pods), each with responsibility for one of the five broad investment themes it focuses on. The aim is to be able to deploy increasing capital whilst maintaining the quality of the investment approach and meet the challenge of identifying some of the most promising private technology companies in the UK.

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
5p
Initial charge
5.5%
Initial saving via Wealth Club
3.5% (4.5% existing shareholders)
Net initial charge
2% (1% existing shareholders)
Annual rebate
0.25%
Funds raised / sought
£80.0 million sought
Deadline
20 Nov 2020 for 2p dividend
Last updated: 21 October 2020

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