'Recessions are best time to invest in startups': How manager of UK's largest VCT and early Depop backer Titan hopes to defy troubled tech landscape

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Titan VCT manager Malcolm Ferguson, who took over last year, thinks a recession presents plenty of opportunity for startups

Within a year of its launch in 2007, Titan VCT had to grapple with the effects of one of the worst recessions in living memory.

Now it is facing another recession, albeit one of an entirely different nature.

Higher interest rates have dented tech companies’ valuations making it an increasingly difficult sector for venture capitalists to navigate.

But fund manager Malcolm Ferguson, who took over last year, is confident the UK’s largest VCT will weather the storm, and a recession will present plenty of opportunity for both early-stage companies and investors alike. 

Why invest in a VCT?

2022 was a brutal year for markets as economic woes and geopolitical volatility led investors to pull their cash from equities and bonds.

Venture capital trusts (VCTs), by contrast, continued to attract strong levels of interest, and investment saw a 68 per cent increase in the last tax year.

The generous tax breaks VCTs offer have long attracted investors, who can claim up to 30 per cent income tax relief on the amount they have invested in the VCT, provided they hold the investment for at least five years.

But it is the companies VCTs invest in that is attracting a growing number of investors. 

With more startups shunning public listings, investors are missing out on the chance to invest in the most disruptive companies at their earliest stages.

While VCTs themselves are stock market listed, they offer investors the chance to invest in young, usually privately-owned companies.

With 115 portfolio companies across five sectors, Titan VCT provides broad exposure to investors looking for innovative companies, and demand remains healthy. 

In October, Titan announced a £175million raise, and it has already reached 70 per cent of its target as of this week. 

” By the time a company goes public, it’s already, very, very late in its maturity and it’s now no longer a high-growth disruptive business”

‘The ecosystem has matured to a place that you can build a business and finance that growth across 10-20 years of growth, without having to tap the public markets,’ says Ferguson. 

‘By the time a company goes public, it’s already, very, very late in its maturity and it’s now no longer a high growth disruptive business. It’s quite a mature, potentially hundreds of millions in revenue, late stage company.’

Titan VCT’s generalist approach has seen some high-profile exits in recent years including Depop, which was sold to Etsy in 2021 for $1.6billion.

VCTs are a higher-risk investment, though. For every successful name, like ManyPets and Skin + Me, which it currently holds in the portfolio, there are many that don’t make it.

Last year Titan sold cash flow business Fluidly to challenger bank OakNorth, while now-collapsed retailer Made.com snapped up Trouva for a paltry sum.

Investment teams also don’t have crystal balls and they sometimes miss out on companies which later down the line have proved to be sector leaders.

‘I kicked myself for not backing challenger banks’ 

‘We always make mistakes. There have been businesses that we’ve said no to that I’ve kicked myself about at points of time,’ says Ferguson. 

He recalls turning down the opportunity to invest in challenger banks when they sprung up a few years ago.

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Success story: Titan VCT invested in Depop’s Series B round back in 2018 and exited in 2021 after it was sold to Etsy for $1.6bn

‘At that point, no one was paying their pay slips into a neobank. You’d just transfer a bit into your Monzo or Revolut… I felt the risk of executing it successfully was low.

‘Clearly we’ve seen some of the most successful fintech companies built in that space. That’s an area I regret not having said yes to.’

Is now a good time to invest in VCTs?

One of the biggest headwinds investors are facing this year is a recession, but Ferguson insists that in periods of dislocation there are plenty of opportunities for early stages.

‘Venture capitalists are quite strange in that they really like the opportunities that recessions create. It really comes down to one thing, and that’s funding scarcity.

“Within Twitter or Microsoft, or any of the big tech firms, they are reducing headcount. So you get this massive influx of talent, which our portfolio companies can then hire”

‘You read about the redundancies happening across the sector. Within Twitter or Microsoft, or any of the big tech firms, they are reducing headcount considerably.

‘You also have the growth-stage companies who are, because of their funding scarcity, not hiring as many people or reducing their headcount as well. 

‘So that means you get this massive influx of talent, which means our portfolio companies can then hire. Historically, one of the biggest barriers and biggest challenges of building a business is just getting the right people around you.’ 

He also adds that a lack of funding can drive down competition which, along with better access to talent, will boost a startup’s chance of success.

‘We meet amazing teams and then, in the next two or three months, you meet three or four amazing teams with a very similar idea. It means when you’re building a startup, you often have a lot of competition. So with funding scarcity you actually have fewer competitors who are being funded.

A cursory look at some of the big technology names of the last three decades suggests recessions can provide a boost for early stage companies.

PayPal and Booking.com started when the dotcom bubble burst, while Airbnb, Uber and Zoopla were born out of the global financial crisis.

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Rising from the ashes: Some of today’s most successful tech businesses such as Airbnb, Uber and Zoopla were founded during the global financial crisis 

‘The first two or three years of any recessionary cycle are the very best in that period to build a business, and therefore invest into those businesses,’ says Ferguson. ‘When Titan started, 2008 and 2009 were the two best ever years in terms of returns.’

Companies at a later stage are likely to struggle securing investment, meaning valuations are lower and they are forced to rethink their strategy.

‘Founders were trying to grow at almost any cost, because growth was rewarded very highly with a very large multiple on revenue,’ he continues. ‘Therefore you could sell at a very high valuation or raise money very successfully.

‘Now growth is not necessarily the most important thing anymore… it’s a combination of growth, efficiency, and appropriate levels of burn, because capital is not limitless. Our best companies are actually taking the decision to sacrifice growth in order to be profitable.’


Minimum investment – £3,000

NAV (as at 8 December 2022) – 89.3p 

Funds under management – £1.2bn 

Cumulative dividends since launch 95p

Ongoing annual charges – up to 2%  

Sectors –  health, fintech, consumer, B2B software and deep tech

2022 total return -10.2% 

Current offer ends 9 November 2023, but may close earlier if fully subscribed. 

What is Titan VCT investing in?

If a new generation of startups is likely to spring up following this recession, what is that likely to look like? 

Ferguson is unsure but notes the recent buzz around artificial intelligence and, recently, the AI-powered chatbot ChatGPT.

‘There are small innovations that happen and then every 10 or 20 years you get longer shifts which are drastic. We try to make sure we get exposure to that by having a broad approach.

Within healthcare, which has seen notable investor interest since the pandemic, Titan has poured money into digital therapeutics companies, where people access treatment through their phones.

It has also invested in deep tech, another buzzword used by industry heads to describe science-based innovation which encompasses robotics and automation.

‘We invested in a strawberry picking robot business called Dogtooth, which goes up and down fields picking only the reddest, ripest strawberries.’

Not one to miss out on emerging tech, Titan led the seed round of Tatum, a tool that helps developers build on the blockchain within days not months, in 2021.

Ferguson noted blockchain was starting to appear in every pitch deck he received from investors three years ago but there was little application for it, other than cryptocurrencies.

‘[The investment in Tatum] means we can get exposure to blockchain but you don’t have to guess what’s going to be the best app. You just have to provide the the ‘picks and shovels’ for people building in this space.’

‘Rather than us having to predict which ones will be successful or useful, we’d rather take a horizontal approach.’

On the consumer-facing side, Titan recently invested in Raylo, which leases refurbished sim-free phones to customers for a fraction of the price.

‘The team is paramount to our investment decisions. If the team is amazing we’ll likely strongly consider making an investment even before we understand the idea because the team trumps everything.

‘With the Raylo team, they were experienced in working in a prior successful company. And they had this idea that there’s just so much inefficiency in the way people buy consumer electronics.

‘They’re not just the “nice to have” any more, they are a “must have”. People see it as almost as important as food and water.’