What Are The Pros and Cons Of pre IPO?

Author: Rahul Jain

We have told you briefly about the pros and cons of a pre IPO. No doubt you can make a lot of money if you capitalize on a pre IPO offering of a legitimate company. We hope this article has been informative for you. Thanks for reading!

Pre IPO buying is becoming the age with both investors and fund managers alike. IPO refers to initial public offering, meaning the day the company is about to be listed or floated on a public stock exchange, meaning it is available to investors at large to put their money in the company. A pre-IPO is an investment opportunity before the company floats and understandably the shares of the company can be bought at discounted rats when compared to their IPO rates. A pre-IPO may be offered anywhere between 3-18 months before a company is floated, without the company being represented by a stock broker. If you are looking to buy pre-IPO shares then its important for you to aware about the risks and benefits when investing in them. In this article we will discuss the pros and cons of Pre IPO offerings and how you can go about them to make a winning investment.

Pros:

  • Discounted price: As we have already told you in the introduction, pre-ipo prices are much less when compared to IPO prices a company may be planning. If you want to reap rich dividends from investing a small corpus of money, then buying unlisted shares in India is something you must consider. Consider the case of Sheryl Sandberg who invested in Facebook through pre IPO and ended up with a profit of millions compared to her paltry investment.

  • Options: Most of the companies have pre IPO offerings so you wont get restricted to a few corporations and will definitely be spoilt for choice to select from. You can invest in all kinds of companies as the majority of them offer this option of raising funds before their opening on the stock market.

  • Regulations: A common misconception about pre-IPO shares is that they are not regulated and are rather opaque which makes them a high risk gamble. This couldn't be more untrue as SEBI (securities and exchange board of India) has come up with regulations and bye-laws to make them compliant.

Cons: There are a few downsides of pre-IPO which are namely:

  • Lockdown: Unlike investing after an IPO, where you can exit your investment at any time, if you require liquidity, the money that you invest in a pre-IPO is pretty much locked down until the company gets listed on the stock exchange.

  • Risks: As opposed to investing in listed companies, some pre IPO companies run the risk of not making their IPO at all and might face hurdles or delays due to numerous economic and legal factors. This however can be countered by making informed choices, and thoroughly doing your research before you put your money in.

Finstream consultancy LLP is one of the biggest brokerage firms in Mumbai, delivering customised solutions for its clients looking for rich dividends in the stock market. From SIP’s to MF’s to unlisted shares, we deal in all kinds of investment solutions.