As India's primary market continues to attract strong investor interest, retail investors are increasingly looking beyond listed stocks and IPO subscriptions to invest in companies before they go public. Pre-IPO investing, once largely restricted to institutional and high-net-worth investors, is now becoming more accessible through regulated intermediaries and online platforms dealing in unlisted shares.
Pre-IPO investments allow investors to buy shares of a company before it launches its initial public offering (IPO), offering an opportunity to participate in its growth journey at an earlier stage. However, unlike investing in listed equities, such investments are illiquid and require a longer investment horizon.
A retail investor can buy shares of a pre-IPO company either through portfolio management services (PMS) providers, alternative investment funds or specialised pre-IPO platforms.
According to Piyush Jhunjhunwala, Founder and CEO of Stockify, retail investors can participate in pre-IPO opportunities through authorised platforms that facilitate transactions in unlisted shares.
"Retail investors can access pre-IPO investments via approved platforms that connect parties involved in the exchange of unlisted shares. It is advisable to choose a trusted platform, understand the company's valuation before making investments, and check documentation to confirm that all processes adhere to regulations," he said.
Experts say investing in pre-IPOs is becoming popular because it is sometimes very difficult to get allocation in good IPOs. Also, retail investors cannot invest more than Rs 2 lakh in an IPO.
Invest with caution
Before investing, experts advise retail investors to conduct due diligence on the company. This includes evaluating its business model, financial performance, management quality, industry prospects, competitive landscape and growth potential. Investors should also understand why the company is raising capital and how it intends to deploy the funds.
Pre-IPO investing can offer significant wealth creation opportunities if a company performs well after listing. Investors in successful companies may benefit from valuation gains between the pre-IPO stage and the public offering.
However, such investments come with considerable risks. Unlisted shares are not traded on stock exchanges, making them relatively illiquid. Investors may find it difficult to sell their holdings before the company goes public. Additionally, IPO timelines can be delayed or, in some cases, may not materialise at all, affecting both liquidity and potential returns.
Valuations in the unlisted market can also fluctuate significantly based on investor sentiment and company performance, making price discovery more challenging than in listed markets.
Jhunjhunwala cautioned that investors should avoid excessive exposure to pre-IPO investments.
"Investors should avoid putting all their eggs in one basket when investing in pre-IPO ventures. The best way to achieve this is to create a balanced portfolio, work with established online platforms, and take a long-term perspective on the investment," he added.
While pre-IPO investing can provide access to high-growth companies before they hit the stock market, financial experts say it is best suited for investors who understand the risks and are willing to stay invested for the long haul.
