Octopus Investments has introduced the Titan 4 VCT, which aims to provide exposure to range of 20 to 30 unquoted UK companies.
The VCT will focus on providing early stage, development and expansion funding to unquoted companies, typically with investments of £200,000 to £2m.
Octopus will identify unquoted companies that are profitable because they can deliver products and services to significant numbers of new customers at a low cost, with the ability to generate repeat sales. The ability to expand into related areas using existing relationships with customers and distributors, product development and a strong band is also important.
Octopus manages 16 VCTs and has been running VCTs since 2001. With this VCT, it can invest in a range of sectors but will focus on the environment, technology, media, telecommunications, consumer lifestyle and wellbeing. Investments will be selected after initial screening and due diligence.
Firms that make the VCT portfolio will usually be held for five years and Octopus may appoint a member to the board of the firms. Companies will be monitored, with regular assessments in terms of their commercial and financial progress, valuation and possible exit. It is expected that the majority of exits will be through a trade sale.
Octopus is not intending to borrow to make investments but is able to borrow up to 20 per cent of the combined value of its share capital and reserves.
Under VCT rules, at least 70 per cent of the portfolio must be invested in unquoted qualifying VCT companies within three years. Before investing in these companies, investments will be held in money market funds and other investment funds managed by Octopus, including the CF Octopus partner fund (absolute return) and CF Octopus partner fund (UK smaller companies)
The UK smaller companies fund invests in the main market and Aim quoted smaller companies, generally with a market cap of less than £100m. The absolute return fund generates returns by investing long and short, using derivatives, in companies of different sizes.
Investors who are looking for a VCT may opt for Octopus due to its experience and track record. However, it could face competition from other generalist VCTs, particularly the Baronsmead VCT 3 and 4 linked offer, which is due to open in January.