About Pre IPO Placement

A pre-initial public offering (IPO) placement is a private sale of large blocks of shares before a stock is listed on a public exchange. The buyers are typically private equity firms, hedge funds, institutions and retail investors willing to buy large stakes in the firm. Due to the size of the investments being made and the risks involved, the buyers in a pre-IPO placement usually get a discount from the price stated in the prospective for the IPO.

Key Takeways

• A pre-IPO placement is a sale of large blocks of stock in a company in advance of its listing on a public exchange.
• The purchaser gets the shares at a discount from the IPO price.
• For the company, the placement is a way to raise funds and offset the risk that the IPO will not be as successful as hoped.

Understanding the Pre-IPO Placement

From the perspective of a young company, a pre-IPO placement is a way to raise money before going public. It also is a way to offset the risk that the IPO price will prove to be optimistic, and the price will not go up immediately after it opens. Moreover and often, investors in these private sales are institutional investors and help the company with governance matters and getting institutionalized before going IPO.

From the buyer's perspective, the amount per share may be discounted from the expected IPO price, but there is no way to know the price per share that the market will actually pay. In fact, the purchase is typically made without a prospectus and with no guarantee that the public listing will occur. The discounted price is compensation for this uncertainty.

The company, however, does not want these private buyers to immediately sell all their shares if their stock soars once it opens on an exchange. To prevent this, a lock-up period is generally attached to the placement, preventing the buyer from selling shares in the short-term.

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Some common examples of companies which are listed in Unlisted Market are Tata Technologies, HDFC securities, Five star business finance ltd, Pharm easy, Care Health insurance and many more.

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