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Fiscal Year 2024 Sees Explosive Triple Surge in Pre-IPO Investments

The companies that made their debut on the bourse in the last financial year raised ₹1,300 crore through pre-IPO placements. This is three times the amount raised through this channel in the last FY and is a huge wipe from FY17. The year for which data is available from FY24 was 1.93 per cent of the amount raised through IPOs.

The biggest mop-up before such launches was FY21 when companies raised ₹931 crore, accounting for 2.95 per cent of total revenue raised through IPOs that year, data from prime database. com, the main market watcher pointed out.

Some of the companies that made the most through such transfers in FY24 include Raashi Peripherals (₹150 crore), SBFC Finance (₹150 crore), Jupiter Life Line Hospitals (₹123 crore),Yatharth Hospital and Trauma Care Services (₹150 crore, ₹120 crore).

Pre-IPO investment refers to the purchase of shares in a company before the actual opening of the fund and is usually done after the prospectus is filed and before the prospectus is opened for listing.

“Companies are able to get a comparative valuation of their issues through pre-IPO placements and it can bring some marquee investors on board as well. Investors are guaranteed a specific share at a specific price, which may or may not happen if they invest through a qualified anchor or institutional buyout,” says Pranav said Haldea, managing director of Prime Database Group.

According to Haldea, pre-IPO positioning can be especially useful for smaller IPOs because it can add credibility to the funding process to reach active investors. Last year, mid- and small-sized companies dominated the IPO landscape. The average deal size fell sharply to ₹815 crore in FY24 from Rs 1,409 crore and Rs 2,105 crore in the previous two years.

The decision to conduct a pre-IPO is taken by the company in consultation with the investment bankers. They primarily target investors with funds and family offices.

IPO distribution

Effective April 1, 2022, the market regulator changed the rules for allocating IPOs to holding investors. Under the NII category, one-third of the quota is allocated to HNIs with an application size of ₹2-10 lakh. The rest is for applications above ₹10 lakh.

“Allocation of HNIs is now done by number of queues. Earlier, if you placed a bid of ₹100 crore and the magazine was subscribed 100 times, you would get a share of ₹1 crore.

New rules

Under the new rules, simply increasing the cost of properly labeled cases does not mean that the HNI will receive a higher discount. This is one of the reasons why affluent investors now prefer to invest through pre-IPO funds,” said Munish Agarwal, managing director and head of equity made Equirus said.

Pre-IPO investors must mandatorily hold the shares for six months from the IPO. Anchor investors have 30 days post lock in which allows them to sell half of their holdings and the remainder after 90 days.

The pre-IPO shares can be split at any price as long as the anchor shares are at the IPO price.

Conclusion: As we move into this period of unprecedented change and innovation, one thing is clear: the pre-IPO boom is here to stay, reshaping the financial landscape and driving technological and economic. If investors with insight into the future don’t take advantage of the opportunity, the potential rewards are endless.