You can buy and sell your stocks on these exchanges through your online brokerage / brokerage account.
Whereas unlisted companies are private companies that have not yet gone through the initial public offering (IPO) process. For example, Reliance Jio, Ola, OYO etc.
The main benefit of investing in this unlisted space is that you have access to new age companies that are rich in innovation.
If you want to invest in new business ideas, and at different stages of their evolution, the unlisted domain is the space for you.
Private equity financing stages
There are different types of stages in private equity financing, as shown in the diagram above.
There is also Series A, B, C and D funding.
For example, PayTM raised a series of financings from several investors – Ant Financial, Mountain Capital, AliBaba Group, SoftBank.
Flipkart, which was acquired by Walmart, has raised funds in more than 20 rounds from several investors, including Microsoft, SoftBank, Tiger Global, Morgan Stanley Investment Management (MSIM) and many others.
Types of unlisted companies
Known companies that are subsidiaries of a known parent company. Example: HDB Financial Services, Reliance Retail, Reliance Jio, etc.
New age companies in Finance, e-commerce, medical technologies, games – ANI Technologies (OLA), One97 Communications (Paytm), OYO, Dream11 etc.
How are these unlisted companies evaluated?
Since the shares of unlisted companies are not publicly traded, there is no market price. Instead, investors and promoters establish a fair value for the stock.
Unlisted stocks enter trading circles when employees dilute their stock options or through private placements by promoters or general shareholders.
There is no formal market for unlisted stocks. Promoters, especially startups, use this route to raise small amounts of working capital without higher levels of inventory dilution, and gain a benchmark for further fundraising.
While raising equity from private equity / strategic investors, the business is valued by these companies and can be used as a benchmark.
5 ways – How to invest in private / unlisted companies?
Intermediaries and start-ups
There are start-ups that can help you own private assets that offer shares in demate account with a minimum investment amount of Rs 50,000 per company.
These companies help find a buyer, but they do not guarantee that the sale will take place. Businesses require you to pay cash in advance and delivery is on a T + 3 basis.
Counterparty risk – which means you can transfer the funds, but there is no guarantee that you will be able to get the shares. Ask your investment advisor for advice before investing in these stocks.
Buy from existing employees with ESOPs
Companies offer stock ownership plans to employees by giving them the option to buy a certain number of company shares at a predefined price after a predetermined period.
You can check with your broker for such transactions.
Buy directly from promoters
These are called private placements and many investment banks and wealth managers make it easy to buy these private assets. The network is the engine of this type of purchase, and you should consider a significant portion.
Buy PMS or AIFs that recover unlisted shares
In addition to retail investors, financial institutions offering portfolio management services (PMS) and alternative investment funds (AIFs) collect unlisted stocks.
Many of these funds invest to “capture pre-IPO valuations” to take advantage of a rise in valuations following an initial public offering. make them understand that there is a risk of falling prices after listing. Ride saluting giant Uber, which was listed recently, is a prime example of a business losing money after an announcement.
Equity crowdfunding platforms, Angel Funds
Individuals invest in a new business in exchange for common or preferred shares