A pre-initial public offering (IPO) placement refers to private sale of large blocks of shares before that particular stock gets listed on stock exchange. Buyers principally include private equity firms, hedge funds, and other institutions who show their interests in purchasing significant stakes in the company. Because of the size of such investments and risks involved, buyers in pre-IPO placement tend to get a discount from the price which is stated in prospectus. From the company’s standpoint, such placement is a way to seek funds and offset risks involved in the IPO.

As a pre-IPO investor, an individual gets a chance to become a prominent stakeholder in the company's growth story. Therefore, there are chances to make significant gains when the company eventually lists on a stock exchange. Pre-IPO is a commonly-used method by several companies or stock promoters. They indulge in such a process to improve their capital base before launching an IPO process. Pre-IPO investing allows an investor to enter a start-up at the ground floor level.

From the buyer's standpoint, the price per share is a discounted one in comparison to the expected IPO price. However, the investor cannot know the price which the market will eventually pay. More often than not, purchase is made without a prospectus. There is no guarantee that public listing will take place. For these uncertainties, the company tends to offer a discounted price. Investors in such a purchase have high net worth and solid knowledge about financial markets. To protect itself, the company does not want such private buyers to immediately sell all their holdings if the stock price surges once it opens on an exchange. Therefore, there is a lock-up period attached to such investments to prevent the buyer from selling shares.

Earlier, pre-IPO investing was allowed for high-net-worth individuals, FIIs, and DIIs. However, now even retail investors can participate in pre-IPOs. However, retail investors are advised to invest according to their risk profile and financial capability.

Since pre-IPO is provided by unlisted company, there might not be regular buying or selling. Securities of unlisted companies are sold through brokers. Therefore, both buyers and sellers are dependent on inputs from the broker. In case of the scarcity, individuals might find it difficult to buy or sell shares. Therefore, individuals are required to consider the liquidity factor before investing in pre-IPO.

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Which type of investor prefer pre-IPO?

More often than not, pre-IPO placements are for investors having high-net-worth and who are aware about the technical aspects of financials markets. Investors having longer time horizon should consider investing in pre-IPO placements. This is because pre-IPO shares tend to have a lock-in period. Therefore, investors are not allowed to sell their holdings until and unless lock-in period gets over.

Since there is no guarantee that the company will go public, pre-IPO investments are considered by the investors having higher risk appetite. Since the amount of risk is high, the returns tend to be exceptional. Few companies might not be able to pay dividends out of pre-IPO placements as large number of investors will opt for the money generated to be reinvested. Therefore, investors who seek only capital appreciation prefer investing in pre-IPO placements.

How VSRK Capital can help?

VSRK Capital can help investors place orders for pre-IPO placements according to their risk appetite and long-term financial goals. VSRK Capital can help in informing clients about upcoming IPO stocks. We can help by offering our clients an opportunity to purchase pre-IPO shares.

We can help our clients by informing them about the changes in the market sentiments related to the upcoming IPOs and suggest them whether they should go ahead with the placement or not.

Reach out to us now!!

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