Octopus Titan VCT

Dividends of 8p declared – apply by 17 November 2021

Octopus Titan VCT is the UK’s largest VCT and one of the largest Venture Capital funds in Europe. It has net assets of £1.28 billion (June 2021). 

The VCT is managed by Octopus Ventures, whose 65-strong team seeks to invest in technology companies operating across five broad themes: fintech, health, deep technology, consumer, and B2B Software. 

The VCT’s diversified portfolio comprises 93 companies, including some of the UK’s fastest-growing private technology businesses. 

2021 saw a number of positive developments within the portfolio. Cazoo, an online used car supermarket, completed its $8 billion listing on NASDAQ. Bought By Many, the pet insurance business, became the fourth VCT-backed business to achieve unicorn status after raising $350 million at a $2 billion valuation. One month later, Depop, the fashion marketplace, was acquired by Etsy Inc for $1.6 billion. Together, the three businesses added £150.7 million to the value of the VCT in the six months to June 2021. Please note past performance is not a guide to the future.

In 2021 Octopus expects 54 of its portfolio companies to grow revenues by more than 50%, with 35 growing by more than 100%.

Over the five years to September 2021, Octopus Titan VCT has generated a NAV total return (including dividends) of 57.0%. 

The current offer is seeking to raise £125 million with an overallotment facility of £75 million. 

Octopus Titan VCT has declared an interim dividend of 2p and a special dividend of 6p, both expected to be paid on 20 December. New investors applying by 17 November 2021 should be eligible – dividends are variable and not guaranteed. 

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 apply

Highlights

  • Large and diversified VCT portfolio, with a bias towards early-stage growth-focused business 
  • 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 Depop, WaveOptics, Zoopla, 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 80.5p paid over the 10 years to September 2021
  • 0.10% annual rebate through Wealth Club, paid for three years
  • Available for this tax year (2021/22) and next (2022/23)
  • 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 £10.7 billion (Jun 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.

Octopus Titan VCT is managed by Octopus Ventures, a dedicated business unit in the Octopus Group. The team has added 25 individuals in the last year and at its current count of 65, it is one of Europe’s largest early-stage investment teams. 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. In fact, approximately a third previously founded or co-founded a business.

Octopus Ventures manages over £1.8 billion across its funds which includes the Octopus Titan VCT, Octopus Apollo VCT, and a number of follow-on funds used to support investee companies once they outgrow the VCT. The team invests more than £200 million annually into early-stage businesses.

Most of the team is based in London, but there is a New York office since 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 maintain focus and discipline. 

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: fintech, health, deep technology, consumer, and B2B software. Each theme is 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 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. Octopus believes the quality of entrepreneurs in Europe continues to improve as alumni of successful venture-backed European businesses are now setting up their own ventures. Taster, listed below, is one such example. 

Longstanding close relationships with successful entrepreneurs are also an important source of deal flow. In 2003, the investment team that would later become Octopus Ventures backed three entrepreneurs – William Reeve, Graham Bosher and Alex Chesterman – who founded the company that was to become 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), and most recently 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:

  • 2021: WaveOptics was acquired by Snap Inc for $500 million in May 2021; Depop was acquired by Etsy for $1.6 billion in June 2021
  • 2020: We Got Pop sold to Entertainment Partners; UltraSoc sold to Siemens in July
  • 2019: Graze.com from Zenith Holding company (a Titan holding) to Unilever; Zynstra (valued at £100m upon exit) to NCR Corporation 
  • 2018: Tails.com acquired by Nestlé Purina PetCare for an undisclosed amount 
  • 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 
  • 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

Octopus Titan VCT – depopDepop – a recent exit

Founded in 2011, Depop began life as a social network that enabled readers of PIG (People in Groove) magazine to buy items from the young designers featured in the magazine. It has since developed into an online fashion marketplace in which users can buy, sell and discover unique fashion. By 2021, the business was reported to have over 30 million users globally, 90% of which are under the age of 26. 

Octopus Titan first invested £5 million in January 2018 at a £52 million post-money valuation and provided £3.77 million follow-on funding in 2019. In June 2021, Depop was acquired by Etsy Inc. for $1.63 billion, generating proceeds of £97.4 million for the VCT, an 11.1x realised return. 

Mush – example of previous failure 

As is to be expected, not all investments work out. Mush is one example. After experiencing first-hand the difficulties of coping with newborn babies, the founders created Mush, a social app for mums to meet up with other mums in the local area.

Octopus Titan VCT invested £1.5 million into the business in January 2018 as part of a £2 million investment round. At the time of the investment, the app had been downloaded by 300,000 mums in both UK and Australia; however, following the investment the business was unable to generate the level of growth required to attract future funding and the business was acquired by Mumsnet Inc in September 2021. The VCT received a nominal consideration for its stake in the business.

Covid-19 impact

The impact of the pandemic on the portfolio has been mixed. Whilst investee companies such as Secret Escapes have faced a challenging environment, others, such as Bought By Many and Depop, have thrived.  

Despite the disruption, the VCT produced a positive return in 2020. The net asset value per share rose from 95.2p in December 2019 to 97.0p in December 2020, after paying 5p of dividends. In the six months to June 2021, the NAV per share has risen to 113.9p, after paying a further 3p in dividends. 

The Octopus Ventures team believes the VCT and its investee companies are both in a resilient position. The VCT holds uninvested cash reserves of £220 million (June 2021). This gives the VCT the ability to support its investee companies in the short and medium term, whilst continuing to make new investments. 

Current portfolio overview

Octopus Titan holds a large and well diversified portfolio of 93 investee companies, spread across a number of sectors (June 2021). The VCT has net assets of £1.28 billion.

The investment strategy is focused on investing in high growth early-stage businesses and this is reflected within the underlying portfolio. Octopus expects 76 portfolio companies will grow revenues in 2021: 54 by more than 50% and 35 (accounting for 25% of net assets) by more than 100%.

The VCT holds uninvested cash reserves of £220 million (June 2021). The manager believes it is appropriate to maintain a level of liquidity to support the VCT 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 2021, Titan invested £52.4 million in 17 companies: £46.5 million in 10 new investments and £5.9 million into seven follow-on investments.  

The top 10 holdings include pet insurance business Bought By Many, used-car supermarket Cazoo, and luxury watch marketplace Chronext AG. The top 10 holdings account for £566.9 million – 44.5% of the total net assets (June 2021). This includes Depop (£97.4 million, 7.6% of NAV), which has since been realised. 

Sector breakdown

Source: Octopus Investments, June 2021.

Examples of portfolio companies

Taster – Octopus Ventures EISTaster – recent investment

Taster is a collection of delivery-only food brands. Its founder, Anton Soulier, was one of Deliveroo’s early executives and was involved in launching Deliveroo’s “dark kitchens”, known as Deliveroo Editions. The combination of low costs, broad delivery areas, and strong demand showed the model had traction.

Unlike other dark kitchens, Taster teams up with renowned chefs to create “digital food brands”, each based on a different cuisine with unique menus. Taster’s first venture, Mission Saigon, proved so popular in Paris that Anton initially considered opening a spring roll factory instead. 

As the business continues to expand, the company plans to move to a franchise model. Taster aims to partner with high-quality restaurants and share its supply chain, operations, technology, and brand in exchange for 20-30% commission on each order. Through this model, Taster hopes to expand to over 40 cities by the end of 2021 and significantly increase its roster of restaurants. 

In April 2021, Octopus Ventures led a $37 million Series B funding round for the company, alongside the venture capital arm of ecommerce giant Rakuten, and existing investors Battery, Latitude, and Heartcore. The VCT invested £3.7 million.

Bought By Many – Octopus Titan VCTBought By Many – largest holding

Co-founded by Stephen Mendel and Guy Farley in 2012, Bought by Many began life as an insurance broker. At the start, it grouped people with similar insurance needs and negotiated better terms with insurance companies for them: better prices and a more appropriate or tailored cover.  

In 2017, after listening to the needs of its customers, Bought By Many launched its own disruptive brand of pet insurance, which went on to win a number of awards, including Best Pet Insurance Provider of the Year at the 2020 Insurance Choice Awards. Today, it insures over half a million pets globally, including in the US, where it launched in 2021.

In 2020, Bought By Many experienced significant growth – it more than doubled gross written premiums annually to £220 million. In June 2021, Swedish investor EQT led a $350 million funding round which valued the business at $2 billion. 

Octopus Titan first invested into the business in October 2016, and to date has invested £10.0 million. The holding is currently valued at £127.0 million, which is 10.0% of net assets (June 2021).

Performance and dividends 

Octopus Titan VCT has generated a NAV total return (including dividends) of 57.0% over the last five years to September 2021 and 185.5% over the last ten – past performance is not a guide to the future.

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

Over the ten years to September 2021, the VCT has paid a cumulative 80.5p per share in dividends, equivalent to a cumulative dividend yield of 84.3%. Dividends are variable and not guaranteed. 

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

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 2015 to 30 June 2021.

Dividends paid per calendar year

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 2021.

Average dividend yield (% of NAV) history

Calendar year Dividend as % of NAV
2016 9.18%
2017 5.21%
2018 5.29%
2019 5.4%
2020 5.46%
YTD 2.82%

Source: Morningstar. Average dividend yields are based on the dividends paid over the period divided by the monthly average NAV of the VCT over the same period. Past performance is no guide to the future.

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.

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.

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 Up to 2%
Annual administration charge Up to 0.3%
Performance fee 20%
Annual rebate from Wealth Club (for three years) 0.10%

More detail on the charges

Deadlines

  • Deadline for first allotment: 17 November 2021 – investors applying by this date should be eligible for the two dividend payments expected in December.
  • Early bird deadline: Apply by 10 December 2021 for 1% early bird saving
  • 2021/22 tax year: application deadline 4 April 2022 (5pm) 
  • 2022/23 tax year: application deadline 20 October 2022 (noon) 

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. If interested in investing in an ISA, please download, print and return the ISA application. 

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 (DRIS)

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. 

Share 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. 

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.

The charts show the five-year discount to net asset value history of Octopus Titan VCT based on the closing share price at the end of each month, divided by the latest net asset value at the time. Past performance is not a guide to the future. Investors looking to sell their VCT shares may get a better price using the VCT’s share buyback facility, although this is not guaranteed.

Five year discount to NAV history

Source: Morningstar, 30 September 2021. Discount is the closing share price at the end of each month, divided by the latest net asset value at the time. Rolling 12 month average is this figure averaged over the year.

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 0.10% 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 diversified portfolio that includes some of the UK’s fastest-growing private technology companies. Octopus expects 35 portfolio companies, 25% of net assets by value, will grow revenues by more than 100% in 2021. This level of exposure to high risk, high-growth companies may appeal to experienced investors seeking to complement a wider investment portfolio. 

Octopus Ventures has a good track record of 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. The VCT has backed four businesses which have grown to be valued in excess of $1 billion.

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. The team is well structured and split into five sub-teams (pods), each with responsibility for a specific theme within the investment strategy. This structure allows the team to maintain specialist expertise in each area. This structure has helped the team to build on its track record of backing some of the UK’s most promising private technology businesses. 

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.

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
0.10%
Funds raised / sought
£16.5 million / £125.0 million
Deadline
17 Nov 2021 for dividends
Last updated: 21 October 2021

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