We all have heard these stories. The ones that start with saying this ‘‘10,000 rupees invested in TCS’ IPO in 2004 or in Infosys’ IPO in 1993 would have been worth so many crores today’’. Well, we are taking those stories one level up! Imagine investing in TCS or Infosys even before their IPO’s!
Bearing in mind the risk of invoking FOMO or similar acronyms, the fact remains that unlisted shares or Pre-IPO shares offer an interesting value proposition and have grown in popularity in recent times. While the risks of investing in unlisted shares are higher than investing in listed shares, the emergence of corporate players and Pre-IPO investment platforms have brought in much-needed transparency in the process. Of late, even ace investors like Mr. Rakesh Jhunjhunwala have been cited stating that their unlisted portfolio has given better results as compared to their listed counterparts.
Unlisted shares or Pre-IPO shares are shares of privately owned companies that have not yet gone
through the IPO process.
Confirmed Allotment: Blockbuster IPO’s often leave a majority of investors without any allotment and hence they lose out on any listing gains. Buying shares in the Pre-IPO segment means that you have a confirmed allotment Early Investing: Early stage investing until recent times had been exclusively an institutional domain.
It was common to hear Angel investors or VC funds investing in high-growth companies and later exiting at jaw-dropping multiples. To a certain degree, unlisted or Pre-IPO shares offer a similar opportunity to common investors
THINGS TO BE AWARE ABOUT
Apart from the risks involved in listed equity shares, investments in unlisted shares carry additional risks such as:
Liquidity and pricing issues – A large number of buyers and sellers on the stock exchange provide for ample liquidity and better price discovery for listed shares. This is not the case in unlisted shares as it is more of a bilateral transaction
Settlement risks – A stock exchange ensures trade settlement for both the buyer and the seller. The absence of an exchange as a settlement entity creates settlement risks. However, the emergence of well-known platforms and players in this space has brought in trust and transparency in the process.