Tax Efficient Review of Octopus Eureka EIS Fund with ... - Clubfinance

EIS companies will be changed to allow investments into larger companies. Octopus claim that they
are well positioned for this change. On the unquoted investment side they have a further team of
fund managers who invest into later stage companies – this is the management team that run the
Eclipse funds. The AIM team already researches the whole market.
In our view, there are three aspects of this offering that set it apart from the rest of the offerings:
the “Octopus Venture Partners” approach to investing, the potential inclusion of AIM listed stocks
and the focus on Early stage, Expansion and Development investments.
The “Octopus Venture Partners” have a dual role. The members pay an annual fee of £3,000 to be
shown investment opportunities in which they can co-invest if they so wish. They are also a pool of
experienced investors who provide both a source of deal flow (the experience of the Ventures team
is that 25% of transactions originate from the Venture Partners) and a source of industry knowledge.
The Venture Partners will be able to invest pari passu with the EIS funds and VCTs managed by
Octopus' Ventures team (Octopus Titan 1&2, for which Octopus raised £30m in the 2007/08 tax year,
Octopus Titan VCT 3, raised during the 2008/09 tax year and which closed in August 2009 after a top
up totalling £20m, Octopus Titan VCT 4 for which Octopus raised £22m in the 2009/10 tax year and
Octopus Titan VCT 5, which has raised over £12.5m and remains open.
Octopus has commented as follows about its relationship with the Venture Partners (VPs) and the
additional resource that this provides them.
“Although we come from different professional, industry, and scientific backgrounds, we share
a real passion for business. We are committed to our companies. We view our management
teams both as partners and customers. We bring considerable experience and expertise to our
companies along with no small amount of ambition, energy, resolve and creativity.
We also understand just how difficult it is to create and grow a business. It's not just about having a
great idea and a capable team: having a network of contacts and real world experience to draw upon
counts for as much. That's why we have been building both an informal and a formal network for
over a decade. The latter, the Octopus Venture Partners, now numbers in excess of 100 businessmen,
leaders of commerce, and entrepreneurs. This group co-invests with Octopus and is a unique and
invaluable resource for our companies to draw upon. This blend of knowledge and skill has allowed
us to help more than 60 UK companies thrive in recent years.
The 100 members of the Octopus Venture Partners are more than just co-investors - they are introducers,
both of deals and industry contacts; entrepreneurs; mentors; advisors; board members; and
much more. They share our passion for business and our desire to see businesses succeed. Ultimately,
their knowledge and contacts can be transformational for our portfolio companies.
We involve the Partners at an early stage in our investment decision making process, often engaging
members with relevant industry experience as part of our initial due diligence. This enables us to
identify outstanding investment opportunities sooner and to make beneficial introductions to the
investee Company earlier.
Once Octopus has agreed investment terms with a Company, the management team will be required
to present the investment opportunity to members of the Octopus Venture Partners who are entitled
to invest alongside our VCT and EIS funds on the same terms. The presentation gives the Partners
the opportunity to assess the Company's investment case and, as importantly from the Company's
perspective, often serves to identify Venture Partners that are qualified and available to add value to
the Company.”
In summary, then, the VPs potentially contribute to the investment process in four ways:
1. The VPs bring high quality dealflow to Octopus, typically on a proprietary basis.
2. Discrete VPs often help in the due diligence carried out by Ventures team. Octopus tells us that
often they meet talented management teams operating in sectors in which none of the Octopus
Fund Managers have direct experience. In this instance, VPs who have experience in the
relevant sector, are invited in to help with due diligence. This enables the Octopus managers
to consider a far wider range of sectors for the portfolios.
3. Prior to Octopus investing into a company, the VPs must endorse the investment decision
Tax Efficient Review Reprinted for the use of Octopus Investments Limited November 2011 7