PRE-IPO stocks are mainly sourced through promoters themselves, Private Equity (PE) firms and Venture Capitalists(VCs) or ESOPs (Employee stock ownership Plan)being sold by employees. PE and VC funds are strategic investors in a company who make time bound investments and at times look for a suitable exit opportunity at reasonable valuations. Promoters may also sell their stake partially to meet out capital requirements and similarly employees also sell their stocks received under ESOP to a third party.

The first and biggest reason for pre-IPO investing is the GAINS it can generate. Pre-IPO investments can lead to tremendous returns for investors. Valuations of Private or unlisted stocks can rise multi-fold before formal listing if chosen wisely.

here are several unlisted Companies which have been performing really well and are available in PreIPO market across Sectors. To name a few – Companies like Anand Rathi Wealth(Wealth Management), Barbeque –Nation Hospitality (Restaurant) , Bira Beer( Alcoholic Beverages), Bharat Hotels(Hotels) , Capital Small Finance Bank ( SFBank), Carrier AirConditioning (Air-conditioning Cons Durables), Cochin International Airport (Airport), Chennai Super Kings(Entertainment), Fino Pay-tech payments bank (Payments bank), Hero Fincorp (NBFC), HDB Financial Services(NBFC), HDFC Securities(Stock Broking), Kurlon Ltd(Furniture’s), Lotto India (Confectionary), Mohan Meakins (Alcoholic Beverages), Philips Lighting India (Lighting Fixtures), National Stock Exchange(Stock Exchange), Paytm(ECommerce), Care Health Insurance (Gen Insurance, formerly Religare health), Reliance Retail(Retail), SMC Global(Stock Broking), Studds Accessories(Auto parts), Suryoday Small Finance Bank(Small Finance Bank), Tata Technologies( Engineering, R&D;), Utkarsh Microfinance(Small Finance Bank), UTI AMC(AMC) etc are available as on 1st September 2020.

Absolutely. Every Investment be it listed Shares or Mutual Funds has some form of risk associated with it. The investment world works on a simple principle of risk-reward. Higher risk offers a better possibility of earning higher returns and vice versa. Pre-IPO carry the same risk as the listed ones. Additionally Investor should clearly understand that : Liquidity of unlisted stocks is less however better than Real Estate Investments. Secondly, Unlisted stocks can be traded freely before IPO however there is a lock-In period of 1 year Post IPO. Thirdly, Information and other Financial data for Unlisted stocks is not as readily available as for Listed Stocks. Finally, IPO of an unlisted stock may take a longer time than expected and gains may not be as per expectations or may even lead to a Capital loss. Thus one should only invest with a longer horizon of atleast 3-4 years to reap the benefis. Investors should clearly understand the risks involved and invest basis their Investment objective, Risk Appetite, financial resources, Knowledge & experience in unlisted space and with a long horizon only . Also one should diversify his/her investments between different companies operating in different sectors and exposure to unlisted stocks should be limited to 10% of one’s Net Worth as a thumb rule.