Octopus said in a statement that the decision will ensure that the venture capital trusts remain eligible under VCT regulation, while retaining its investments in top-performing companies. U.K. VCT regulation states that at least 70% of a VCT’s investments by value must be shares or securities in companies which meet the conditions of the scheme, including a stipulation that investee companies are small, with a maximum of £16 million of gross assets.
As Octopus’ four investments look set to outgrow the VCTs in value terms under rules governing VCTs, Alex Macpherson, chairman of the Octopus Ventures Investment Committee, said the firm has taken the decision to move the assets into a limited partnership.
Macpherson said Octopus wanted to find a solution which ensured that each VCT remained qualifying, and that the shareholders’ tax reliefs were maintained.
The new fund will have just less than £40 million of commitments under management and will be financed by institutional investors DB Private Equity & Private Markets ̶ the private equity arm of Deutsche Bank’s asset management unit ̶ and European fund of funds manager Seligman Private Equity. The vehicle will be managed by Octopus.
The VCTs will retain 50% of their original investment in Zoopla, Graze, Calastone and Secret Escapes by owning a stake in the new fund. A total of 97% of VCT shareholders voted in favour of the move, according to the statement.
He said: “We were asking if we could have a later-stage fund that sits above our VCTs. As a result of the legislation and the rules of the VCTs, we had a problem and we had to solve it. So then we thought it would be good to move the assets from the direct ownership of the VCTs and into the [new] vehicle.”
This could set a trend for other venture capital fund managers to explore being able to retain investments in larger companies while remaining within the VCT regulations.
Proceeds will be used by the Titan VCTs to fund new and follow-on investments, as well as funding future distributions to shareholders in the form of tax-free dividends and financing share buy-backs.
Private equity advisor Bluetower Associates advised Octopus on the transaction.