Octopus Investments is looking to raise £25m in the asset manager’s latest fundraise for its Apollo VCT.
The Apollo VCT, which currently has £140m assets under management, seeks to capitalise on businesses' increased reliance on technology during Covid-19.
The VCT invests predominantly in commercialised business-to-business technology firms which have a growing customer base, repeating revenue and the potential for significant expansion.
Richard Court, manager of the VCT, said: “The long-term investment outlook for technology was already extremely positive, but over the past six months we’ve seen a significant acceleration in the adoption of tech by businesses as they have adapted to new ways of working.
“I firmly believe this is a permanent shift and we’ve seen a strong pipeline of businesses well positioned to take advantage of this.”
Mr Court said he typically looked for proven companies with expansion opportunities which could be “unlocked” by growth financing.
He added: “Our investment should allow them to reach greater scale and, in time, profitability.
“This is often by investing in research and development to improve existing products, enlarging the sales team, or expanding internationally.”
The trust has outperformed its peers in the AIC VCT Generalist Sector over the past three years — returning 8.3 per cent compared to the sector’s average of 4.3 per cent — but has underperformed in the long-term.
Over five years, the trust has returned 18 per cent compared to the sector’s 21, while in the past decade investors in the trust saw a 50 per cent return, much lower than the sector’s 125 per cent.
The VCT’s highlights include Natterbox, which offsets cloud telephony services to corporate customers, and City Pantry.
Apollo’s investment in Natterbox allowed the firm to invest in its sales and marketing function and expand to the US, resulting in revenues almost trebling since the investment in 2018.
Meanwhile, the Octopus team exited its investment in City Pantry in 2019 after it was acquired by FTSE 100 giant Just Eat.
Apollo’s backing helped City Pantry to more than double the number of customers it served and increased revenues, providing the trust with a 40 per cent return on investment.
Paul Latham, managing director at Octopus Investments, said: “Apollo presents a great opportunity for those investors who prefer to invest in slightly later stage companies that are already generating significant revenues.
“Smaller companies tend to be more adaptable, which means they can take advantage of new opportunities as they arise, creating new jobs in the process. VCTs act as a vital source of growth capital to make this possible.”
VCTs are like investment trusts but only invest in small, young and typically unlisted companies.
Although such companies are riskier and statistically more likely to go bust, investing in a VCT comes with a 30 per cent income tax relief from the government and returns are tax free.
The trusts have performed well in recent years — the top 16 VCTs have all at least doubled investors’ money on a net asset value return basis over the past 10 years while the 2018/19 tax year had the second biggest VCT season on record, according to data from the AIC.
Many put the rise in popularity of VCTs down to cuts to the pension allowances and restrictions on buy-to-let investing, which has resulted in VCTs being one of the few tax efficient investment avenues left for wealthier investors.
imogen.tew@ft.com
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