Risks of Trading Pre-IPO Shares

My Friend Was Offered Swiggy’s Pre-IPO Stock, Just Like These Celebs—We Decided to Say No. Here’s Why Recently, my friend was offered Swiggy’s Pre-IPO stock, just like Madhuri Dixit, Ritesh Malik, and a bunch of other celebs. ₹5,04,360 per share (CCPS) with a conversion ratio of 1:1401 which will convert into shares before the IPO. Sounds tempting, right? We thought about it long and hard… and then we decided not to buy. Here’s why: The current valuation of Swiggy for these CCPS shares is at $15 billion. That's a huge number considering its closest competitor, Zomato (with a higher market share), is already valued at $25 billion—and here's where things start to look a little dicey. Zomato’s revenue FY24: ₹12,961 Cr Swiggy’s revenue FY24: ₹11,247 Cr BUT, Zomato’s net profit FY24: ₹351 Cr Swiggy’s net LOSS FY24: ₹2,530 Cr 🤯 You’re being asked to buy at a $15 billion valuation for a company that’s making losses. Meanwhile, Zomato—profitable and still leading the market—has a higher valuation. But wait, it gets more complicated. You can’t even sell your shares until 6 months after the IPO, thanks to the mandatory lock-in period. Add in the time until the IPO actually happens, and you’re looking at close to a year of illiquid investment. What’s the upside? Maybe 20-25% in 6-8 months post-IPO—when the stars align. What’s the downside? Market crashes. IPO delays. More losses. Who knows? Do we really want to bet on Swiggy when Zomato is already profitable and the market is volatile? Not really! Ps: I am a loyal swiggy customer. LOVE the product. Just that this didn’t make sense to me

𝐒𝐡𝐨𝐮𝐥𝐝 𝐲𝐨𝐮 𝐢𝐧𝐯𝐞𝐬𝐭 𝐢𝐧 𝐮𝐧𝐥𝐢𝐬𝐭𝐞𝐝 𝐬𝐭𝐨𝐜𝐤𝐬? Read this before chasing the next ‘pre-IPO’ jackpot. Lately, 𝐈 𝐬𝐞𝐞 𝐮𝐧𝐥𝐢𝐬𝐭𝐞𝐝 𝐬𝐡𝐚𝐫𝐞𝐬 𝐛𝐞𝐢𝐧𝐠 𝐬𝐨𝐥𝐝 𝐥𝐢𝐤𝐞 𝐡𝐨𝐭 𝐬𝐚𝐦𝐨𝐬𝐚𝐬. Every broker is pushing it. Friends are forwarding “pre-IPO” deals. All backed by one belief: “𝐈𝐏𝐎 𝐦𝐞𝐢𝐧 𝐭𝐨 𝐩𝐚𝐢𝐬𝐚 𝐛𝐚𝐧𝐭𝐚 𝐡𝐢 𝐡𝐚𝐢” But reality check? ✅   𝐇𝐃𝐁 𝐅𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐰𝐚𝐬 𝐛𝐞𝐢𝐧𝐠 𝐬𝐨𝐥𝐝 𝐚𝐭 ₹1200-₹1500 in the unlisted market. It is 𝐧𝐨𝐰 𝐭𝐫𝐚𝐝𝐢𝐧𝐠 𝐚𝐭 𝐚𝐫𝐨𝐮𝐧𝐝 ₹830. Nearly everyone who entered in the 𝐩𝐚𝐬𝐭 18 𝐦𝐨𝐧𝐭𝐡𝐬 𝐢𝐬 𝐢𝐧 𝐥𝐨𝐬𝐬. Post-HDB, prices of 𝐍𝐒𝐄 𝐚𝐧𝐝 𝐍𝐒𝐃𝐋 𝐬𝐡𝐚𝐫𝐞𝐬 𝐚𝐥𝐬𝐨 𝐝𝐫𝐨𝐩𝐩𝐞𝐝 𝐛𝐲 15-20%. Here’s why unlisted investing isn’t as simple as it looks: ❌ 𝐍𝐨 𝐫𝐞𝐬𝐞𝐚𝐫𝐜𝐡 Most buyers rely on a 1-pager from brokers. No proper financials, no business overview. Just “looks good, will list soon.” ❌ 𝐍𝐨 𝐯𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧 𝐜𝐡𝐞𝐜𝐤 Everyone talks price. No one checks at what valuation they're buying. No PE, no PB, no listed peer comparison. ❌ 𝐍𝐨 𝐞𝐚𝐬𝐲 𝐞𝐱𝐢𝐭 Many companies keep delaying IPOs. There's no timeline. If you want to sell, you may have to sell at a loss due to low liquidity. ❌ 𝐍𝐨 𝐬𝐚𝐟𝐞𝐭𝐲 𝐧𝐞𝐭 In listed stocks, exchanges protect you from counterparty defaults. In unlisted trades, there’s no such protection. If the other party disappears, there’s little you can do. ❌ 𝐋𝐨𝐜𝐤-𝐢𝐧 𝐩𝐞𝐫𝐢𝐨𝐝 If you buy shares within 6 months of IPO allotment, SEBI restricts you from selling them for 6 months after listing. Most people are unaware of this.   𝐀𝐬𝐤 𝐭𝐡𝐢𝐬 𝐛𝐞𝐟𝐨𝐫𝐞 𝐛𝐮𝐲𝐢𝐧𝐠: 𝐼𝑓 𝑡ℎ𝑒 𝑠𝑡𝑜𝑐𝑘 ℎ𝑎𝑠 𝑢𝑛𝑙𝑖𝑚𝑖𝑡𝑒𝑑 𝑢𝑝𝑠𝑖𝑑𝑒, 𝑤ℎ𝑦 𝑖𝑠 𝑠𝑜𝑚𝑒𝑜𝑛𝑒 𝑠𝑒𝑙𝑙𝑖𝑛𝑔 𝑖𝑡 𝑡𝑜 𝑦𝑜𝑢?   Unlisted investing isn’t bad. 𝐁𝐮𝐭 𝐢𝐭’𝐬 𝐧𝐨𝐭 𝐚𝐬 𝐞𝐚𝐬𝐲 𝐚𝐬 𝐢𝐭 𝐥𝐨𝐨𝐤𝐬. 𝐃𝐨 𝐲𝐨𝐮𝐫 𝐡𝐨𝐦𝐞𝐰𝐨𝐫𝐤. 𝐊𝐧𝐨𝐰 𝐲𝐨𝐮𝐫 𝐫𝐢𝐬𝐤.   𝘍𝘖𝘔𝘖 𝘪𝘴𝘯’𝘵 𝘢 𝘴𝘵𝘳𝘢𝘵𝘦𝘨𝘺. 𝘐𝘵’𝘴 𝘰𝘧𝘵𝘦𝘯 𝘢 𝘴𝘩𝘰𝘳𝘵𝘤𝘶𝘵 𝘵𝘰 𝘳𝘦𝘨𝘳𝘦𝘵. For more insights follow Akashdeep Grover

How do you avoid exorbitant fees, counterparty risk, or outright fraud when investing in pre-IPO SPVs? The hard truth is there might not be any way to completely avoid these risks. These markets are risky, and the current frenzy for pre-IPO only exacerbates that risk. The valuations we are seeing for the top private companies are completely unprecedented, and while this creates huge opportunity for investors, it also creates incentive for bad actors. Recently, we ourselves had firsthand experience with suspected fraud in this space. We took action to investigate and are actively working with federal law enforcement and regulators, but in this case offered to return invested capital and fees to affected investors off of our own balance sheet ahead of any potential recovery. That being said, there are important things investors can do to mitigate counterparty risk: 1. Invest through FINRA/SEC-regulated entities or those with audited financials. Regulated broker-dealers are subject to oversight and compliance requirements that unregulated operators simply are not, and RIAs have even greater audit requirements. 2. Prioritize direct cap table placement. The gold standard is for the vehicle to be listed directly on the company's cap table. In multi-layer SPVs, you're trusting the operator's solvency and integrity. The further you are from the cap table, the more counterparty risk there is. 3. Understand the full chain of ownership before you wire. Ask for the complete legal structure: Who holds the shares? Under what entity? Who is the manager? Does the seller have appropriate legal counsel involved? Who controls the SPV's LLC agreement, and what rights do you actually have? Legitimate operators will have legible answers. 4. Scrutinize the fee structure in full. Management fees, carry, admin fees, wire fees, and custody fees can stack in ways that erode returns even on a successful investment. 5. Verify the source and provenance of the shares. Not all pre-IPO shares are equal. Understand whether you're buying from a fund, a current or former employee, or other secondary trader. Uninvestigated provenance is one of the most common sources of deals falling apart. Our platform has nearly $1.5B in AUM, with the vast majority invested on cap tables or directly through registered investment advisors. We’ve also distributed $10s of millions back to investors in less than two years of operations. With a front row seat to the rapid scaling of pre-IPO markets in just the last few years, we’ve found the gap impossible to ignore: public markets have decades of infrastructure, standards, and shared literacy that simply don’t exist for private markets yet. Closing that gap is how private markets become truly liquid, accessible, and transparent.

Using SPVs for pre-IPO investing has gotten a bad rap. But the truth is that there’s nothing inherently good or bad about an SPV (special purpose vehicle). An SPV is simply a legal entity set up to a) raise capital and b) invest in a specific target investment. It’s a long-established tool that goes back decades in the private equity world.  So why all the bad press? Because an entire industry of fly-by-night “investment managers” has popped up seeking to exploit investor euphoria and interest in pre-IPO investing, especially in artificial intelligence, space, crypto, and robotics startups. They realize that they can capitalize on their college and professional networks to gain access to executives at hot startups, and then resell their access broadly to investors with significant fees, markups, and opaque structures. Multi-layer SPVs are something to especially watch out for. This is when an SPV owns another SPV (dual-layer funds), which may even in turn own another SPV (triple-layer funds). With rigorous due diligence on the underlying structures and investments, these instruments could pass muster. Without due diligence, they could lead to serious issues, like compounding fees and markups, broken chains of ownership, and even fraud. So it’s not the SPV you need to watch out for, but rather the management team and the way they’ve structured the investment. How can you protect yourself? Here’s just a small and non-exhaustive sample of questions to ask before you invest (check out our full article on this topic below):  1. Is the SPV manager charging management fees and carried interest (profit participation)? These fees can dramatically impact your returns over time.  2. Can they provide documentation of ownership, like share certificates, a purchase agreement, or subscription agreements (in the case of a multi-layer fund).  3. For a multi-layer, can they provide documentation of their own due diligence on the underlying SPVs? What are the additional fees and how do they impact your total fees?  4. Do they have an established process or platform for you to re-sell your investment if you need liquidity?  5. Do they provide audited financial statements? Do they have a team dedicated to communicating with investors and updating them on the status of their investments? Well-designed SPVs offered by established platforms and managers can be an effective way to access the world of pre-IPO investing. Just make sure to strike the right balance between fear and greed. Your due diligence is your strongest defense. #liquidity

Unlisted Market – A Silent Trap for Retail Investors Many people chase unlisted shares thinking they’ll make a fortune before IPO listing. But the reality? It’s often a rigged game. Take the latest example of Tata Capital: In the unlisted (grey) market, its stock was trading as high as ₹1,095. The IPO price band is now set at just ₹310–₹326. That’s a massive 70% cut from its so-called “value” in the unlisted space. Who loses here? Retail investors who bought unlisted shares at inflated prices. Who wins? The operators and insiders who create artificial hype in the grey market. This is not the first time, and it won’t be the last. there are many cases like NSDL, Nazara, HDB all listed at ~50%+ discount from unlisted share price The unlisted market lacks transparency, regulation, and liquidity, making it a perfect playground for manipulation. Don’t get lured by the hype of “exclusive pre-IPO shares.” Stick to regulated markets, where at least the playing field is clearer. What do you think, should SEBI step in to regulate the unlisted market more tightly? #SEBI #Unlistedshare #investmentbanking #finance #linkedin #tatacapital

This is a very interesting and instructive situation. When a company (Tata Capital, in this case) prices its IPO at about 1/3 (or heavily discounted) relative to its unlisted share price, it delivers several lessons — both for unlisted equity investors and for anyone thinking about investing in IPOs or private shares. First, let me summarise the facts (based on recent news): #TataCapital has set its IPO price band at ₹310–₹326 per share. Its unlisted shares (in grey/over-the-counter/unlisted markets) had traded much higher — e.g. ~₹735 (or even over ₹1,000 in earlier peaks). This isn’t unprecedented — similar things have happened with other NBFCs/unlisted-to-IPO transitions (e.g. HDB Financial’s IPO shocker, where the IPO price was ~42% below unlisted valuations). So, when such a discount materialises, it sends strong signals and also offers several cautionary lessons. Below I break down what we can learn (and watch out for) from this: 1. Before investing in unlisted shares, always perform intrinsic valuation (not just rely on what others are paying). 2. Have an exit plan: if the IPO triggers, when will you sell? At what price? 3. Be wary of “join the crowd” fomo — just because a stock is hot in unlisted markets doesn’t guarantee good returns. 4. Monitor company fundamentals continuously (debt, profitability, regulation) especially for financial firms. 5.Spread risk i.e. diversify..do not put too much capital in one unlisted bet. 6. The discount may be deliberate to ensure broad subscription and a likely “listing gain/pop” to attract attention. 7. Tata Capital is categorized as an “upper layer” NBFC and is required by RBI to list by a given date. That gives less flexibility in pricing, possibly forcing a discount to ensure success. #Onlyforeducationalpurposes. #Investwiselyasitisyourhardearnedmoney #IPO