Octopus Titan VCT’s net asset value (NAV) update

For professional advisers and paraplanners only.

Not to be relied upon by retail investors.

Octopus Titan VCT (“Titan”) has recently announced its interim NAV, based on results to 31 December 2023. Over the 6-month reporting period, Titan’s NAV Total Return fell by 5.7% and 12.4% overall in 2023.¹  

Conditions in the venture capital market remain challenging. Seed investment activity is at its lowest level since Q1 2018, more established technology companies continue to face downwards pressures on their value as investors continue to allocate towards profitability over growth, and there is an ongoing weak market for exits.²

While valuations across the sector have stabilised this year, the depressed market for growth companies continues to apply reduced multiples to even profitable and growing businesses. Without exit activity driving up both valuations and capital for the sector, the sector feels quite static. Titan’s NAV reflects this macro scene, where the reduction in multiples applied to the largest holdings within the portfolio has driven a reduction in NAV as at 31 December 2023.¹   

A high level summary

• Interest rates appear to have peaked, however with inflation remaining above the Bank of England’s target, analysts have moved predictions for the first cuts back to the Autumn. This is likely to keep investors’ cost of capital elevated compared to the 2021 bull market, which in turn will negatively impact company valuations.³
• Many companies in the Titan portfolio have strong cash positions, with almost 90% of portfolio NAV in companies having more than 12 months of cash runway (the number of months until cash runs out) available to them as at 31 December 2023.⁴ This should put them in a strong position to navigate their way through the current market conditions whilst capital remains difficult to raise.  
• Despite this, established businesses on their way to profitability continue to be impacted by downwards pressure on valuations. While such companies are able to operate independently of the funding markets, they will be growing more slowly and so investors are prepared to pay a lower multiple for them.
• However, recessions can be some of the best times to make new investments. There are fewer companies fighting for the best talent, fewer competitors able to access funding and more opportunities for small nimble businesses to create services for larger outfits which reduce their investment in innovation.
• In the second half of 2023, Titan invested £34m into 16 new and existing portfolio companies supporting their next stages of growth.¹

Private company valuations

Technology company valuations remain closer to ten-year lows rather than the highs of the 2021 bull market because of central banks increasing interest rates to combat inflation which rose to levels not seen for over a generation.⁴

In all four quarters of 2023, more than 19% of new funding rounds for private companies came at a lower valuation than their previous round, which is by far the biggest hit to valuations seen since the start of 2018.²  

In addition to this, less capital has been flowing to early-stage companies. In Q4 of 2023, start-ups closed the smallest number of rounds in the last five years, with the seed stage deal count down 27% from 2022.² This is the result of several trends; companies trying not to raise money at low valuations, the sector being less attractive to investors for macro reasons, venture capital investors have less capital to invest into early-stage companies due to the lack of exits of their more mature holdings – whether that be through Initial Public Offerings (IPOs) or trade sales.

However, we are starting to see green shoots in the outlook for funding availability, with close to 100 companies having recently filed to list on the Nasdaq stock exchange which provides an exit route for their investors.⁵ The reawakening of the IPO market in 2024 is likely to benefit VCTs. Increased demand from public market investors provides an opportunity to sell portfolio companies at higher share prices than they may currently be valued at within Titan’s portfolio. This is because pre-sale valuations will include an element of (sometimes significant) uncertainty which is removed once the company is sold.⁶

Why has Titan’s NAV fallen?

Titan’s NAV Total Return has fallen by 5.7% over the six-month reporting period to 31 December 2023.¹ As with most portfolios, this is a combination of positive and negative performance at portfolio company level.

Titan has been building its portfolio for over 15 years, which comprises companies it first backed many years ago which have grown to be larger more established companies but not yet exited, along with newer investments at the earlier stages of development.  As is typical of venture capital, the more mature companies in Titan’s portfolio make up the majority of its NAV because they have grown in size and value post investment. As at 31 December 2023, Titan has a portfolio over 145 companies, however approximately 57% of its NAV came from its 20 largest companies and 43% comprised companies that generate more than £10m annually in revenues.¹

These larger companies have not been immune from the wider market shift towards prioritising profitability rather than growth. For the reasons explained above, these businesses continue to be valued on a lower multiple which depresses a large part of the value of the Titan portfolio.

Across the portfolio, Titan companies continue to have strong cash runways, with almost 90% of the portfolio expected to be able to fund their business for the next 12 months without requiring more capital.¹ Nevertheless, these companies will be growing more slowly as a result of switching towards capital efficiency rather than growth, reducing their values.

While many companies in the portfolio continue to perform well, there hasn’t been any market activity in the portfolio over the last six months that would move valuations upwards. As is consistent across the market, no profitable exits have taken place in the last six months, and companies that can afford not to raise money at current low valuations have not gone to market to raise new capital.

The outlook for Titan

Titan continues to invest actively despite the challenging macroeconomic environment and in the last three years has made more than 80 new investments which position Titan well alongside its more mature stakes.¹  

Titan invested almost £60m into 22 new companies in 2023.¹ Octopus led the seed round for Awell Health which automates clinician workflows allowing medical professionals to spend more time practicing medicine, rather than administrative tasks.  Octopus also led the series A for Go Autonomous, an AI-powered platform which saves around one third of the time that customer service representatives within the Business-to-Business (B2B) industry spend on processing quotes and orders (which rely heavily on emails) – they do this by identifying the intent of emails, extracting and structuring key information and connecting this automatically to a company’s order management system.  

In terms of funding health, almost 90% of Titan’s portfolio NAV is in companies that had more than 12 months of cash runway available to them as at 31 December 2023, which we believe puts them in a very strong position to navigate their way through the current market conditions.⁴

Titan portfolio companies we’re excited about

One of the most exciting companies in Titan is Skin+Me, the second biggest company in the portfolio by value. Skin+Me combine medical expertise and technology to offer personalised skin care treatment plans on a subscription basis. The high-quality products are developed by industry experts and tailored to address the specific needs of the consumer, whether that be acne, ageing, melasma, rosacea or hyperpigmentation. The founding team of Skin+Me are highly experienced in the consumer space having previously worked at graze. Graze was a previous successful Titan investment – it was sold to Unilever achieving positive returns for Titan shareholders.

Another company we are excited about within the Titan portfolio is Pelago (formerly Quit Genius). Pelago partners with employers, health plans, pharmacy benefit managers and individuals to help conquer substance addictions through behavioural therapy treatments and approved medications. Created by a diverse team of doctors, technologists and designers, Pelago is the world’s first digital clinic delivering comprehensive Medication-Assisted Treatment (MAT) for multiple addictions, 100% virtually, with coaches providing emotional support and education. Pelago’s method demonstrates a five times greater likelihood of users quitting over the course of a year compared with other programs.⁷

Titan’s performance and track record – ten discrete years to 31 December 2023

	2014	2015	2016	2017	2018	2019	2020	2021	2022	2023
Annual NAV total return	10.5%	7.2%	4.1%	3.7%	1.7%	7.6%	7.1%	20.3%	-22.5%	-12.4%
Annual dividend yield	7.9%	2.0%	8.8%	5.1%	5.2%	5.4%	5.3%	11.3%	4.7%	6.5%
NAV	97.7p	102.7p	97.9p	96.5p	93.1p	95.2p	97.0p	105.7p	76.9p	62.4p
Total value	147.7p	154.7p	158.9p	162.5p	164.1p	171.2p	178.0p	197.7p	173.9p	164.4p

Past performance is not a reliable indicator of future results.

The performance information above shows the total return of Octopus Titan VCT for the last ten years to 31 December, the VCT’s accounting period. The annual total return for Octopus Titan VCT is calculated from the movement in net asset value (NAV) over the year to 31 December 2023, with any dividends paid over that year then added back. The starting NAV figure is 95.2p from 31 December 2013. The revised figure is divided by the NAV at the start of that period to get the annual total return. Performance shown is net of all ongoing fees but does not include upfront feed taken from the initial investment value. The annual dividend yield is calculated by dividing the dividends paid per annum by the NAV at the start of the period. Please note, the NAV per share may be higher than the share price, which is the price you may get for the shares on the secondary market. Total value is calculated as the sum of the NAV per share and cumulative dividends per share for the last ten years to 31 December 2023. 

There are some risks associated with investing in Titan VCT

• The value of an investment in Octopus Titan VCT, and any income from it, can fall as well as rise. Investors may not get back the full amount they invest.
• VCT shares could fall or rise in value more than other shares listed on the main market of the London Stock Exchange. They may also be harder to sell.
• Tax treatment depends on investor’s personal circumstances and may change in the future.
• Tax reliefs depend on the VCT maintaining its VCT-qualifying status. 

Get in touch

If you have any questions or would like to discuss a client case, please reach out to your Octopus Business Development Manager on 0800 316 2067.

¹ Octopus Ventures, 31 December 2023 | ² State of Private Markets: Q4 and 2023 in review, Carta, 5 February 2024 |³ When will interest rates fall? Forecasts on when base rate will go down, This is Money, 15 February 2024|⁴ Octopus Ventures, 31 December 2024. Cash runway is calculated by value of companies within Titan’s portfolio| ⁵ Tech valuations are at a 10-year low – but optimism should be at a 5-year high. Here’s why, Fortune, 5 February 2024 ⁶ The IPO Market Looks Ready to Rebound, Says Nasdaq CEO, Barron’s 11 January 2024 I ⁷ Trends: Tech IPOs will come back in 2024, Constellation Research, 27 December 2023 | ⁸ Pelago, 12 March 2024.

VCT investments are not suitable for everyone. This communication does not constitute advice on investments, legal matters, taxation or any other matters. This advertisement is not a prospectus. Investors should only subscribe for shares based on information in the prospectus and Key Information Document (KID), which can be obtained from octopusinvestments.com. Investors should read the product brochure before deciding to invest; this can be found at octopusinvestments.com. Personal opinions may change and should not be seen as advice or recommendation. Issued by Octopus Investments Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London EC1N 2HT. Registered in England and Wales No. 03942880. We record telephone calls. Issued: March 2024. CAM013974.