India’s startup scene is growing faster than ever. With fresh ideas, strong government support through initiatives like Startup India, and a steady flow of venture capital, the ecosystem is buzzing with new opportunities. But here’s the thing—not all promising startups rush to go public. Many choose to stay private for longer, building their businesses before hitting the stock market. This has opened up a new investment path: Pre IPO or unlisted shares. More investors are now looking at investing in pre-IPO shares to get in early on companies with high growth potential. In this blog, we’ll explore why unlisted shares matter, how they work, and what makes them a compelling option for investors. Without waiting further, let's get started.
 

Rise of Startups 

India’s startup scene has grown at an incredible pace, turning the country into a major hub for new businesses and innovation. With over 120,000 startups and more than 110 unicorns valued at $350 billion, India ranks third globally, right behind the US and China. Companies like Byju’s, Flipkart, Paytm, and Zomato have shown how startups can scale rapidly, with Byju’s alone reaching a valuation of over $22 billion. This growth has been fuelled by increasing internet access, with over 700 million users, and government initiatives like Startup India and Digital India, which offer funding support, tax benefits, and easier regulations.

A large part of this boom comes from India's young and tech-savvy population, with 65% of people under 35. Their demand for digital services has led to rapid innovation in areas like FinTech, HealthTech, and EdTech. Digital payments alone are expected to cross $1 trillion by 2025, with startups like Razorpay and BharatPe leading the way. HealthTech companies like Practo and 1mg are improving healthcare access, while EdTech giants like Extramarks and Unacademy are transforming education. With strong government backing and a growing digital market, India’s startup ecosystem is set to expand even further, creating more opportunities for businesses and investors alike.

The Unlisted Equity Boom 

The Rise of Unlisted Equity: A Growing Opportunity

India’s startup scene is booming, and many investors are looking beyond the stock market to grab a slice of the action. Unlisted shares—stocks of companies that haven’t yet gone public—are becoming a popular choice. With startups in technology, fintech, healthcare, and consumer goods growing fast, investing in them before they hit the stock exchange can be a smart move.

Many of these companies are on track to become industry leaders, and getting in early could mean bigger returns than traditional stocks. That’s why more investors are diving into unlisted equity, hoping to benefit from the growth of these businesses before they go public.

Why Is the Unlisted Market Becoming More Popular in India?

With more technology-driven businesses and a growing Indian startup ecosystem, the demand for capital has gone up. Many early-stage companies prefer raising funds through unlisted shares instead of going for an IPO. This helps them avoid high costs and complex regulations while still attracting investors.

Online platforms now track the performance of top unlisted companies across different sectors, giving investors a clear picture of how these private businesses are doing. These platforms act as a benchmark, helping investors understand trends and make informed decisions in the unlisted share market. As a result, more investors are exploring this space, seeing it as an opportunity to invest in companies before they go public.

How Investing Evolved: From Listed Stocks to Unlisted Shares

For a long time, investing meant putting money into companies listed on stock exchanges like the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). These stocks were easy to buy and sell, provided transparency, and felt like a safer option, making them the go-to choice for most investors.

As India’s economy grew, so did the interest in new ways to invest. This is where Initial Public Offerings (IPOs) started getting attention. Buying shares in a company before it got listed on the stock exchange became a great way to enter early and potentially earn big profits. In 2021 alone, more than 60 IPOs were launched, raising over ₹1.3 lakh crore, according to SEBI. This shows how quickly IPO investing gained popularity.

But investing didn’t stop there. As more people looked for ways to invest before a company even reached the IPO stage, pre-IPO investing started gaining attention. This meant buying shares while the company was still private, often at a lower price than what it might list for in the future. Initially, this option was mostly available to big investors and institutions, leaving smaller investors out.

Technology is now changing that. What was once only for big investors is now becoming accessible to regular investors through online platforms. More people are stepping into the world of unlisted shares, and as the process becomes smoother, retail investing in India is set to grow even further.

This shift benefits both investors and companies. Investors get more options to grow their wealth, while businesses can raise funds from a wider pool of shareholders. With technology making investing easier, more Indians will be part of this financial transformation, shaping the future of the market.

What’s Next for Indian Startups with Unlisted Shares in India?

Startups in India are making big moves, and their unlisted shares are gaining attention. Investors are keeping a close eye on how these companies perform before they hit the stock market. Some startups have already shown strong growth, making their unlisted shares more appealing.

Take Swiggy, for example. The food delivery and quick commerce platform saw its unlisted share price jump from ₹340 to ₹490 in just 60 days—about a 44% increase. This kind of growth reflects rising investor confidence.

OYO has also made progress. The hospitality startup reported profits for the first time, cutting its losses from ₹1,000 crore in FY23 to just ₹100 crore in FY24. This turnaround has made its OYO’s unlisted shares more attractive to investors.

With more startups improving their financials and gaining market trust, the future of unlisted shares in India looks promising. However, as with any investment, these shares come with risks, and their value can change quickly. For those looking to invest in emerging businesses before they go public, keeping an eye on performance and market trends is essential.

Tips for Investing in Unlisted Startup Shares

Investing in unlisted startup shares can be a great opportunity, but it comes with its own risks. To make informed decisions and improve your chances of good returns, here are some things to keep in mind.

1. Look for Companies Preparing for an IPO

If the goal is to see strong returns, focus on companies that are likely to go public in the next few years. Businesses getting ready for an Initial Public Offering (IPO) often see a rise in valuation as they move closer to listing. The trick is to find companies with solid business models, steady growth, and a clear demand for their products or services.

Before investing, ask yourself: Does this company have the potential to grow in the next five years? Industries like technology, healthcare, and renewable energy tend to grow fast, so companies in these spaces often have an edge. Looking at their financials, market position, and overall industry trends can help you decide if they’re worth the investment.

2. Time Your Investments Wisely

Buying unlisted shares just before an IPO announcement may not be the best move. As IPO news spreads, more investors rush in, driving up prices. This can push the unlisted share price higher than the actual IPO price, leaving little room for profit.

3. Understand the Lock-in Period and Plan Your Exit

In India, shares bought before an IPO come with a lock-in period after listing—six months for Main Board IPOs and one year for SME IPOs. This means you won’t be able to sell them immediately after the company goes public.

To reduce risks, make sure there’s a good margin between the price you pay and the expected IPO price. If you buy unlisted shares at ₹100 and later hear that the IPO will be priced at ₹150, but before the IPO, the unlisted price jumps to ₹130-140, consider securing your profits. Selling at this stage allows you to pass on the risk to those willing to take it while locking in your gains.

4. Do Your Research Before Investing

Not every startup in India is worth investing in, no matter how exciting it sounds. Take the time to research and evaluate before putting in your money.

• Check the Company’s Financials – Look at revenue, profit margins, debt, and overall financial stability. A startup struggling with heavy losses might not be the best bet.
• Understand the Business Model – Does the company have a clear revenue stream? Is there a demand for its products or services? A business that relies too much on investor funding without solid earnings can be risky.
• Look at the Leadership Team – A company is only as strong as the people running it. Experienced founders with a good track record increase the chances of success.

Before making a decision, gather as much information as possible, compare different options, and always invest with a clear strategy in mind. A well-researched approach, including an understanding of key strategies for unlisted shares, can significantly improve your investment success.

Closing Thoughts

Unlisted shares are opening new doors for investors looking to enter the startup space early. With India's startup ecosystem growing rapidly, these investments offer exciting possibilities, but they also come with risks. A careful approach, backed by thorough research, can help investors make better choices. As more startups scale up, this market will likely see even more interest in the coming years.

Author Bio:

Saumil Patel oversees content marketing initiatives for InCred Money, where he and his team leverage his in-depth knowledge of emerging financial markets and his deep understanding of finance and investment strategies to craft compelling digital content that resonates with savvy investors. With a keen interest in alternative investments, Saumil combines his passion for finance with his sharp analytical skills to simplify complex financial concepts, making them accessible to a broader audience. Saumil is passionate about helping investors navigate the complexities of high-growth private companies. His expertise lies in creating insightful, data-driven content that empowers investors to diversify their portfolios and seize early-stage opportunities. His innovative strategies help InCred Money reach new audiences in the fintech space. Outside of work, he enjoys gaming and cricket, using strategic thinking in all aspects of his life.

Disclaimer: The above blog has been written by Saumil Patel. TheUnitedIndian holds no liability for the information shared in this blog post. Readers should use this information at their own discretion.