What are Unlisted Shares? How they differ from Pre IPO Shares?

Unlisted shares are equity shares of a company that are not listed on any recognized stock exchange (BSE SME and NSE Emerge). These shares are usually issued by private companies or start-ups and are traded through over-the-counter (OTC) markets, private transactions, or specific investment platforms. They do not have the same level of liquidity and regulatory oversight as listed shares.

Are Unlisted shares and Pre-IPO shares the same? 

Unlisted shares and Pre-IPO shares are related but not identical. Pre-IPO shares are a subset of Unlisted shares issued through Pre-IPO capital raise. They are equity shares of a company that plans to go public in the near future. While all pre-IPO shares are unlisted, not all unlisted shares are pre-IPO shares, as many private companies may not have immediate plans to go public. The unlisted share price list may be available on various unlisted trading platforms.

 

What is the meaning of Pre-IPO placement? 

Pre-IPO placement refers to the sale of a company’s shares to private investors, such as institutional investors, venture capitalists, or high-net-worth individuals, before the initial public offering (IPO). This is done to raise funds, reduce debt, or build a network of influential investors before listing on the stock exchange. Pre-IPO placements typically offer shares at a discounted rate compared to the IPO price.

Best Unlisted Shares in India:

Investing in Pre-IPO shares offers an opportunity to acquire stakes in high-growth companies before they are listed, often at a lower valuation. Some of the attractive unlisted shares in India include:

1. OYO - A globally recognized hospitality and hotel aggregation platform.
2. Vikram Solar - A prominent player in the solar energy industry.
3. Incred- A leading NBFC and wealth management company
4. Pharm Easy - A key player in the health-tech and e-pharmacy sector.
5. Chennai Super kings (CSK)
6. Motilal Oswal- Leading Financial services company
7. NSE- National Stock Exchange
8. MSEI- Metropolitan Stock Exchange of India, SEBI’s authorised exchange 

OYO unlisted share price, Vikram solar unlisted share price, NSE share price unlisted, Pharmeasy unlisted share price, HDB finance unlisted share price might be tracked on various unlisted trading platforms and its movements and related analysis can be done.

These companies have strong growth potential, making their unlisted shares highly attractive to investors.

 

Why invest in Pre-IPO shares?

1. High Growth Potential: Opportunity to invest in companies at an early stage of their growth journey.
2. Discounted Valuation: Pre-IPO shares are often available at lower prices than the eventual IPO price.
3. Diversification: Adds diversity to an investment portfolio by including private companies.
4. Potential for High Returns: Early investment can result in significant capital appreciation post-IPO.

Who are the Pre-IPO investors? Pre-IPO investors typically include:

• Institutional Investors: Venture capitalists, private equity firms, and hedge funds.
• High-Net-Worth Individuals (HNIs): Affluent individuals seeking to diversify their portfolios.
• Employees: Through stock options (ESOPs) offered by the company.
• Angel Investors: Early-stage investors supporting start-ups.
• SME IPO enthusiasts: Investors exploring opportunities in BSE SME companies, BSE SME board, and similar avenues.

How can I invest in Pre-IPO shares?

1. Through Brokers or Intermediaries: Specialized brokers facilitate pre-IPO transactions.
2. Via Private Equity or Venture Capital Funds: These funds provide access to pre-IPO opportunities.
3. ESOP Buybacks: Purchasing shares from employees.
4. Investment Platforms: Online platforms like unlisted share marketplaces.

What are the risks of investing in Pre-IPO shares?

1. Liquidity Risk: Difficulty in selling shares before the IPO.
2. Valuation Risk: Unlisted shares lack transparent pricing mechanisms.
3. Regulatory Risk: Absence of stringent oversight compared to listed shares.
4. Market Risk: Economic or sector-specific downturns may affect valuations.
5. Company-Specific Risks: Failure to achieve growth targets or delays in IPO plans.

How to conduct due diligence of a Pre-IPO company?

1. Financial Health: Analyse financial statements and growth metrics.
2. Business Model: Evaluate the company’s business plan and revenue streams.
3. Market Position: Assess competitive advantage and market share.
4. Management Team: Review the experience and track record of key executives.
5. Legal Compliance: Verify regulatory filings and legal standing.
6. Industry Trends: Understand the sector’s growth prospects.

How are Pre-IPO shares valued? Pre-IPO shares are valued based on various factors such as:

• Revenue and Profitability: Financial performance and growth trends.
• Market Comparatives: Comparison with similar companies in the industry.
• Future Potential: Growth projections and scalability.
• Investment Rounds: Valuation during previous funding rounds.

What documents are required for pre-IPO investments?

1. KYC Documents: PAN card, Aadhaar card, and proof of address.
2. Investment Agreement: Terms and conditions of the transaction.
3. Share Subscription Form: For acquiring shares.
4. Bank Account Details: For payment and dividend processing.
5. Legal Disclosures: Any agreements or disclosures required by the company.

 

What role does IPO Advisors play in Pre IPO placement?

An unlisted company planning to raise funds through Pre IPO shall opt to take Pre IPO and IPO advisory services to assist in Pre IPO process. Private placement through Pre IPO is a very regulated process with role of many intermediaries hence Pre IPO consulting is beneficial.

IPO Advisors play an important role in successful Pre IPO and then launch of IPO. Their advisory role ranges from IPO readiness, selecting the best merchant banker in India for Pre IPO/ SME IPO, various due diligence activities and IPO valuation guides the company throughout the Pre IPO, IPO Issue and listing process. IPO platform in India provides information on upcoming IPOs on NSE Emerge and BSE SME and list of merchant bankers and anchor investors. Role of IPO advisor is important in the success of the listings. 

 

What are the exit options for pre-IPO investors?

1. IPO Listing: Selling shares on the stock exchange after the IPO.
2. Buybacks: Selling shares back to the company or other investors.
3. Private Sales: Over-the-counter transactions with other investors.
4. Secondary Market Platforms: Platforms specializing in trading unlisted shares.

Investing in Pre-IPO shares offers unique opportunities but requires careful analysis and understanding of the associated risks.

 

Conclusion

Investing in unlisted shares and Pre-IPO shares offers significant opportunities, especially for those looking to gain early exposure to high-growth companies before they go public. Pre-IPO shares, a subset of unlisted shares, are particularly attractive due to their potential for discounted valuations and substantial capital appreciation once the company lists on the stock exchange.

However, such investments come with inherent risks, including liquidity challenges, valuation uncertainties, and regulatory limitations. It is crucial for investors to conduct thorough due diligence by evaluating a company’s financial health, business model, competitive position, and growth prospects. The exit options, while potentially lucrative, are also limited to specific events like IPO listings, buybacks, or private sales.

Ultimately, while unlisted shares can provide a high return potential, they require a careful approach, informed decision-making, and a clear understanding of the risks involved. Investors should ensure that they are well-prepared and have access to reliable channels for purchasing and managing these assets.