Can I buy the shares of a company before the IPO?

Last Updated: 02-Dec-2022

Short Answer

Buying the shares of companies that are not listed is an easy task these days, as there are many online platforms that allow retail investors to own shares of unlisted shares or Pre-IPO shares. Buying Pre-IPO shares have some advantages as well as disadvantages, it is discussed in detail below.

Detailed Answer

What are Pre-IPO shares?

Pre-IPO shares are the shares of a company that is not listed on any exchanges such as NSE or BSE or has not come up with an IPO.

Now every company needs to raise capital for its day-to-day workings and other purposes. For that, there are 2 ways available to raise money. One is to get capital through Debt or to get the capital through selling its Equity.

When the company issues and sells its Equity, these shares are held by private investors. If these investors need to liquidate their position then they sell their shares to someone else. In this way, the shares of Unlisted companies are circulated in the market.

Can I buy shares before the IPO?

Yes, One can buy the shares of unlisted companies through various platforms that provide the shares of unlisted companies. Previously, to own shares of unlisted companies one had to be a “Private Equity” investor where the minimum investment ticket size was close to 2 crore rupees which are very high for an average investor.

Now there are many platforms that have given access to private Equity to retail investors in much smaller ticket sizes.

Benefits of Investing in Pre-IPO shares-

Entitled to all the benefits of a Shareholder

Buying Pre-IPO shares are similar to buying the shares from NSE(National Stock Exchange) or BSE (Bombay Stock Exchange). If one buys the shares of any companies, they are the shareholders of the company and are entitled to all the Dividends, Bonuses, Splits, etc. offered by the company.

Guaranteed allotment

In today's times IPO’s are subscribed heavily due to the heavy retail participation and the hype that is created in the Media. Due to this genuine investors are not allotted the desired quantity of shares that they wish to purchase. Buying the share Pre-IPO is a good solution to that as one can mostly get the desired quantity. Most of the time one can get the shares at a discount from the upcoming IPO price.

High Growth Potential

In buying the shares of companies that are not listed and are comparatively small, the Upside growth potential is huge compared to Listed companies. If invested in a company at its initial states then the investment can produce exponential returns in the medium to long term.

Disadvantages on buying Pre-IPO shares-

Liquidity

As the shares are not listed on any exchange, one would have to rely on third-party platforms for the buying and selling of these shares. It might take a long time to sell them prior to listing and the desired price might not be achieved.

Lock-In post listing

Pre-IPO shares have a lock-in period of 1-year post the listing of the shares. Hence if an investor has to sell the shares as soon as it is listed then that’s not possible as the Shares held from before the IPO cannot be sold until one year from the date of listing.

By the above points, one should be clear by now that any retail investor can buy shares of companies that are not yet listed on any Sock exchanges

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Categories: IPO Basics
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