Octopus Titan VCT

Deadline: 5 Apr 2018
Octopus Titan VCT seeks 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.

There are three ways to invest. You can make a one-off investment using new money. You can set up a monthly direct debit (minimum £1,000). You can also now invest by transferring an existing ISA: see how.

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Highlights

  • A mature and diversified portfolio spanning established companies such as Secret EscapesCalastone 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
  • NEW: invest using an existing ISA 
  • Apply online (outside an ISA) - exclusive to Wealth Club

Download the free research report – Inside Octopus Titan, the largest VCT


The manager

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. 

Watch an exclusive video interview with Octopus Ventures chairman Alex Macpherson:

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. 

Early-stage businesses

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.

Investment process

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. 

Exit strategy

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.

For examples of exits – and failures – download the free research report »

Annual performance to April 2017 each year

  2013 2014 2015 2016 2017
Octopus Titan VCT
(NAV Total Return)
33.8% 9.6% 11.4% 7.2% 4.7%
Source: Octopus Investments. NAV total return includes dividends; performance shown is net of all ongoing fees and costs. Past performance is not a guide to the future; dividends are variable and not guaranteed.

Risks

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. 

Venture capital schemes, including VCTs, are currently the subject of a Treasury consultation. The proposals are expected to be announced in the Budget in November. This could affect VCTs, including the levels of tax reliefs available: note nothing is yet confirmed. However, if you are considering investing in VCTs, it may be prudent to act now.

Fees

The initial charge to invest through Wealth Club is 3% (normally 5.5%). 

Existing Octopus investors can save a further 1%.

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.

There are no additional charges to invest in the Titan VCT via an ISA.  The only charges are those that apply to the underlying VCT.

How to invest 

First, please read the provider documents carefully to ensure you are comfortable with investing and understand the risks. If investing using your ISA, please also read the Terms & Conditions for ISA transfers.

Invest with new money

If you wish to invest a single amount using new money, the quickest way is to apply online.  You can read the important documents and invest using the button below. Alternatively, you can download, complete and return the application by post. 

If you wish to make a regular investment via direct debit (minimum £1,000 per month) you should download, complete and return the application by post.

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NEW: Invest in Octopus Titan without investing new money

You can now invest in Octopus Titan VCT in an ISA. This could be hugely valuable. Why?

  • You don't need to invest new money – instead, you transfer funds from your existing ISA to the Titan VCT ISA and invest
  • You're eligible for up to 30% VCT income tax relief – provided you hold the investment for at least five years
  • Your investment is still in an ISA, so any growth and income are tax free
  • You don't use this year's ISA allowance

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. 

Octopus is the first – and so far the only – VCT provider to offer this facility. 

Please note, this is a simplified example. Tax rules can change and tax benefits depend on individual circumstances.

What to do next

Before transferring, please ensure you won't incur excessive exit fees. Your ISA will be transferred as cash, so you’ll be out of the market while the transfer takes place and will be unaffected by any ups or downs in the market. The transfer timescale will depend on your existing ISA provider.

Please read the provider documents, including the Terms and Conditions for ISA transfer and download and complete the Titan VCT ISA application.

Octopus Investments will honour the early bird discount based on the date of the application. Shares will be allotted at the next available allotment date after cleared funds have been received. 

The VCT fundraise capacity will be ring-fenced based on the estimated transfer value you provide on the application form, so you have the best chance of receiving an allotment as the fundraise nears capacity, even if the transfer doesn’t complete by 14 November.

The shares will be held in a nominee service. No share certificates will be issued however Octopus Investments will issue a tax certificate to claim the 30% income tax relief as normal.

Deadlines

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)

Summary

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. The new option to invest using an existing ISA is a very attractive additional feature, in our view.

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. 12.10.2017

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The details

Targeted Dividend
5p per share
Initial Charge
5.5%
Minimum Investment
£3,000
Sector
Generalist
Deadline
5 Apr 2018
WealthClub Saving
2.5%

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