Octopus Titan VCT
Octopus Titan VCT is now open, seeking to raise up to £120 million with an over-allotment facility of up to £80 million.
The UK's largest VCT, Octopus Titan launched in 2007. It has 57 companies in the portfolio and assets of around £425 million. It focuses on early-stage growth orientated businesses, which are by nature high risk.
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- A mature and diversified portfolio spanning established companies such as Secret Escapes, Calastone and Graze.com, to earlier-stage businesses such as eve Sleep and Property Partner
- One of the UK’s best-performing generalist VCTs over five years with net asset total returns of 89.6% (annual performance figures shown below). Past performance is not a guide to the future
- A history of exits – including Zoopla, the first VCT-backed £1 billion company and SwiftKey, the AI-powered smartphone keyboard
- A track record of tax-free dividends – since launch in 2007 it has paid total dividends of 66p per share, and has an annual dividend target of 5p per share (variable and not guaranteed)
- Low minimum investment – just £3,000
- Up to 5.5% saving on the initial charge when you invest through Wealth Club before 14 November
- Apply online – exclusive to Wealth Club
Octopus Investments, the UK’s largest VCT manager, was launched in 2000 out of the front room of one of the three founders. Today it has more than 500 employees and manages £6.7 billion on behalf of over 50,000 private and institutional investors, including pension funds, asset managers, fund-of-funds and family offices.
Octopus Titan VCT is managed by the Octopus Ventures team, a dedicated business unit within the Octopus group. It is led by Alex Macpherson and Alan Wallace who co-founded it in 1999 as Katalyst Ventures, which was acquired by Octopus Investments in 2008. There are 17 others in the team covering deal origination, portfolio management and exits. Before joining Octopus, many were well-established in other industries, such as consumer goods, professional services and technology. Some of the team were also entrepreneurs themselves, having grown and sold their own businesses.
Most of the team is based in London, but a new office opened in New York in 2016, giving the team an international presence and facilitating the expansion of portfolio companies in the US.
Target return and strategy
There is a target dividend of 5 pence per share per year – which is variable and not guaranteed. Occasionally there might be special dividends, usually as a result of an exit or partial exit.
Capital growth is also an aim. Indeed over five years to July 2017 the Octopus Titan VCT has been one of the UK's best-performing generalist VCTs, delivering total returns of 89.6% (NAV cumulative total returns, source: AIC; see annual performance below). Please remember, past performance is not a guide to the future.
This VCT unashamedly backs growth-orientated early-stage businesses. Companies sought must be “tech enabled”, with a strong management team, in a large market and have the ability to grow quickly. Tech-enabled businesses exploit technology or technology trends, rather than being outright vendors of technology. Examples are Secret Escapes, a digital travel business, or graze.com, which started out by offering snack boxes through an online subscription service. This type of business doesn’t normally need high levels of capital to fund growth.
Investments are typically phased over several rounds. The managers will start with an investment of as little as £150,000 in very small businesses, in some cases without revenue. They will only add to the original investment if the business proves successful. Overall the average investment per company is approximately £1.5 million. The strategy is not to bet the bank too early on a particular company.
An example of such a business is eve Sleep plc, which Octopus backed over 3 rounds from seed stage. In May 2017 it floated on London’s AIM, and remains a holding of the Titan VCT.
Due to its size and position in the market, the Octopus Ventures team believes it sees up to 70% of the suitable investment universe in any given year – around 3,000 opportunities. Sources of deals include entrepreneurs known to Octopus from previous ventures, the Octopus investment network (which includes investment professionals, incubators and accelerators) and competitors.
Around 1,000 of the opportunities are reviewed in more detail and, if deemed appropriate, Octopus Ventures meets the companies’ management teams. Each month around 25 meetings take place. Any company that passes this first filtering stage will then be subject to a more formal multi-tier selection process, which lasts up to three months. The final decision is made by the Ventures Investment Committee. Out of the initial c.3,000 opportunities only 8-10 per year currently receive investment. The new fundraise will allow Octopus to increase this.
In the 12 months to 30 April 2017 Octopus Titan has invested £58 million into both new and existing portfolio companies. Generally, Octopus Ventures invests in just the equity of the business and unlike other VCTs doesn’t lend money. Usually one of the Ventures team sits on the board of the companies the VCT invests in, which allows them to play a prominent role in the company’s ongoing development.
There is no predetermined exit strategy when buying into a business; Octopus believes that if the business is successful, the exit route reveals itself naturally. Looking at some of Octopus’s notable winners, the exit routes have been flotations, partial realisations, and trade sales.
Most of the realisations have been partial: Octopus has sold some of its shares in the business, but still retained a position. The manager is keen to stress the VCT typically invests for five to eight years.
Annual performance to April 2017 each year
|Octopus Titan VCT
(NAV Total Return)
This is an early-stage growth VCT so some of the underlying companies will fail. In total, so far there have been 12 companies fail out of 70 invested in. These are generally longstanding investments of between five and eight years at least.
Another risk is that when the performance hurdle is met, 20% of future gains will automatically go to Octopus. The hurdle rate is reset at the end of each financial year assuming the NAV has increased.
The usual risks with smaller companies exist with this VCT offer. For instance, VCT investments are illiquid and capital is at risk. Investors should only invest money they can afford to lose.
The value of tax relief will depend on the circumstances of the individual investor and tax rules could change in future.
The intial charge to invest through Wealth Club before 14 November is 1% (normally 5.5%).
Existing Octopus investors can save a further 1% – so the net initial charge for applications through Wealth Club could be as little as 0% for applications before 14 November and 2% thereafter.
The annual management fee is 2% and in addition Octopus is entitled to an annual administration fee of 0.3%. Annual running costs are capped at 3.2%. Octopus also receives deal arrangement fees of 1.5%.
A performance fee is also payable of 20% of any future gains, based on increasing total returns from this point – for full details please read the brochure.
Unless the offer is fully subscribed before these dates, the following deadlines will apply:
- Early-bird saving of 2% on the initial charge: 14 November 2017 (5pm). The first allotment will be on 17 November 2017
- Deadline for allotment in the 2017/18 tax year: 4 April 2018 (12 noon)
- Final closing date: 4 September 2018 (12 noon)
The Octopus Ventures team is in our view the star of the Octopus stable. Led by Alex Macpherson, it has a long track record of investing in, nurturing and exiting companies profitably. This VCT has a lot of cash to invest, which puts pressure on to find quality opportunities, but the team is extremely well resourced and the strength of its investment network gives it a competitive advantage. We believe anyone planning to invest in VCTs should at the very least add Octopus Titan VCT to their shortlist.
Wealth Club aims to highlight investments we believe have merit, but you should form your own view. You should decide based 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. 05.09.2017
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- Targeted Dividend
- 5p per share
- Initial Charge
- Minimum Investment
- 14 Nov 2017 for early bird saving
- WealthClub Saving