Octopus Apollo VCT

Octopus Apollo VCT is managed by the Octopus Ventures team, one of the largest venture capital teams in Europe. 

Since 2018, it has focused on investing in small and medium-sized B2B software companies, which typically generate between £2 million and £8 million in annual revenue and have demonstrated strong revenue growth. The VCT currently has a portfolio of around 45 companies and net assets of £439 million (July 2024).

Over the five years to 30 June 2024, Octopus Apollo VCT generated a NAV total return (including dividends) of 49.4% – past performance is not a guide to the future.

• Seeking to raise up to £50 million with a £25 million overallotment facility
• Targets an annual dividend of 5% of NAV – variable and not guaranteed
• Available for 2024/25 tax year (applications for 2025/26 are yet to open)
• Minimum investment: £5,000 – you can apply online
• Next deadline: 28 November, 5pm, for declared dividend of 1.3p per share – not guaranteed

The manager

The VCT is managed by Octopus Ventures, part of Octopus Investments – the UK’s largest VCT manager, also responsible for Octopus Titan VCT, Octopus Future Generations VCT and the Octopus AIM VCTs. 

Launched in 2000, today Octopus Investments has more than 600 employees and manages £13.4 billion (June 2024) on behalf of over 63,000 retail investors, charities and institutions, including pension funds, funds-of-funds and family offices.

The VCT is managed by Octopus Ventures’ B2B software team, led by Paul Davidson. Paul joined Octopus in 2017 and has more than 12 years’ experience working with B2B SaaS companies, and became Lead Manager of the Octopus Apollo VCT in 2024. Previous manager Richard Court is now Head of VCT and Enterprise Investment Scheme investments so remains involved with Apollo. 

Paul is supported by a team of 12 B2B specialists, as well as the wider resources of Octopus Ventures. 

Investment strategy

Octopus Apollo VCT launched in 2006 and in 2018 started to invest under the current growth capital investment strategy. 

The team targets more commercialised businesses with a bias towards B2B software – usually steering clear of the startups favoured by stablemate Octopus Titan VCT. Apollo looks to help companies reach profitability, with its investments usually put towards increasing sales and marketing efforts, or expansion into new locations or markets.

At the point of investment, companies should have annual – preferably recurring – revenues exceeding £1 million, typically ranging between £2 million and £8 million. Businesses must have a proven proposition with evidence of significant revenue growth and a broad customer base. 

Octopus Apollo typically invests £2 million to £10 million in each company via a mix of unsecured debt and equity. Where available, it will seek some downside protection via a preference share or similar – though these remain high risk investments.

Portfolio overview

Octopus Apollo VCT has net assets of £439 million (July 2024), including 18.5% in cash and cash equivalents. The investment portfolio comprises around 45 companies and is concentrated, with the top 10 holdings accounting for 46% of NAV. 

In the six months to July 2024, the VCT invested £22.3 million across three new and six follow-on investments (£9.5 million and £12.8 million respectively). New investments include Definely (detailed below), smart thermostat business Switchee and product research insight platform Cambri.

Asset allocation breakdown

B2B software portfolio – top ten sectors

Example portfolio companies

Natterbox – largest investment

Established in 2010, Natterbox is a cloud-based telephony system that provides solutions to common call centre problems.

Natterbox removes the need for expensive IT and phone infrastructure, allowing businesses to easily scale without upgrading servers. The software can also integrate into most Client Relationship Management (CRM) programs, enabling automatic call capturing and information recording.

Octopus Apollo VCT first invested £5 million in March 2018 to support sales and product development. The VCT has invested a total of £17.5 million, now valued at £39.5 million and accounting for 9.0% of net assets (July 2024). Past performance is not a guide to the future.

Definely – recent investment

Legal documents are notoriously dry and difficult to navigate. Drafting, reviewing and proofing documents is time consuming for lawyers and expensive for clients. Definely aims to make the process easier. 

It allows lawyers to call in and review pre-existing clauses and definitions, while also automating hundreds of proofreading checks. It already has 40,000 users, including leading legal and inhouse teams, such as Slaughter & May, DLA Piper and Pinsent Masons. In 2023 it made the Deloitte Fast 50 list, with revenue growth over the previous four years of 1,217% putting it at number 23.

Octopus Apollo invested £2.8 million in May 2024, leading a £7.1 million round. The capital is expected to be used to acquire more users and expand Definely’s technical team. 

Exit track record

In the 18 months to July 2024, the VCT reported three profitable exits with a fourth completed after the period end. 

Exits last year included The Safeguarding Company (TSC), detailed below, and then-AIM quoted company Ergomed for an 8.7x return. More recently, the VCT sold its stake in Dyscova to medical device group GBUK for a 1.7x return on investment and legacy holding Countrywide Healthcare Supplies for a 4.4x return.

Total disposal proceeds in the last 18 months are £29.6 million. Past performance is not a guide to the future.

The Safeguarding Company – recent exit

The Safeguarding Company has created safeguarding software, MyConcern, that makes it easier for caregivers to record, report and manage their concerns.

A big challenge for caregivers of children and vulnerable adults is sharing information that might help keep them safe. Each organisation that may be involved – police, schools, social services, and hospitals – all use different systems, so it is difficult and time-consuming for caregivers to create, maintain and update records. Information is easily lost or out of date, which can impact quality of care. MyConcern makes sharing data between agencies easy, enabling caregivers to spend more time caring for those in need.

The VCT initially backed the business in 2019 and invested a total of £4.9 million. The company was acquired in February 2023 by Tes Global, a UK-based international provider of digital solutions to schools. The deal provided the VCT with initial cash proceeds of £10.6 million, with the potential for additional proceeds to follow.

Spiralite – example of previous failure

As can be expected, not all investments worked out. One example is Spiralite.

Spiralite developed a patented air duct design for use in commercial property, believed to be more effective in terms of airflow and energy efficiency than rival solutions. However, the business struggled to gain the required commercial traction and, despite efforts to improve sales and external funding, the company was placed into administration in 2017 and the holding was written down to zero.

The investment had originally been made through Octopus Eclipse VCT and was inherited by Apollo when the two VCTs merged in 2016. The investment does not represent Apollo VCT’s own historic or current investment strategy.

Performance and dividends

Over the five years to 30 June 2024, Octopus Apollo VCT generated a NAV total return (including dividends) of 49.4% – past performance is not a guide to the future. Note, we show VCT returns over a five-year period as a minimum, where possible. Where a VCT has followed the same investment strategy for longer, we also show returns over 10 years.

There is a target annual dividend yield of 5% of Net Asset Value. Over the five years to June 2024 the VCT has paid total dividends per share of 17.6p, equivalent to a cumulative dividend yield of 37.4% of average starting NAV - dividends are variable and not guaranteed.

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

Dividend payments in the calendar year

Dividend Reinvestment Scheme (DRIS)

There is a Dividend Reinvestment Scheme under which allows shareholders to reinvest future dividend payments by way of subscription for new shares, if desired. As these are new shares they should be eligible for tax relief (you will need to claim this on your tax return or directly with HMRC) and the shares will count towards the VCT annual subscription limit.

Share buybacks

The boards intend to buy back shares at up to a 5% discount to the prevailing net asset value. This is not guaranteed – please see the offer documents for details. 

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.

Based on data from Morningstar, the discount to NAV as at 30 June 2024 was -4.3%. Over the previous five years the average discount to NAV was -5.7%.

The discount history is based on the closing share price of the VCT 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 VCTs’ share buyback facilities, although this is not guaranteed.

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.

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, offer price and share allotment calculation methodology.

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.

Annual rebate

The offer 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 a percentage (shown in the table above) of the net asset value of the offer shares issued to you when you invest. Terms and conditions apply. 

Deadlines

• Deadline for first allotment and 1.3p declared dividend: 28 November (5pm)
• Deadline for 1% early bird saving: 31 January 2025 (5pm)
• Deadline for the 2024/25 tax year: 3 April 2025 (5pm)

Our view

Octopus Apollo VCT is the second-largest VCT in the market. The trust is managed by Octopus Ventures, which also manages Octopus Titan VCT, and has access to the same resources.

However, unlike its stablemate, Apollo has focused exclusively on B2B software companies since 2018, targeting more mature, revenue-generating businesses. Those businesses have proven resilient in the current climate, helping the VCT deliver robust performance, particularly in the last three years. 

Today, Octopus Apollo’s preference for B2B software is well reflected within the portfolio. The sector accounts for 96% of fixed asset investments. The VCT has enjoyed a steady stream of exits, including The Safeguarding Company (detailed above). 

The VCT may be worth of consideration for experienced investors, particularly those seeking to complement an earlier stage, more growth-orientated VCT investment portfolio.

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.