The Future of Pre-IPO Investments in India – RTR Unlisted Viewpoint

Pre-IPO investing  buying shares of companies before they list publicly  has moved from invitation-only deals for institutions to a broader, tech-enabled market accessible to high-net-worth and retail investors via online platforms. This growth has been driven by a strong pipeline of Indian startups and private companies preparing to list, increasing investor appetite for early access to potential high-growth opportunities, and the rise of marketplaces that match sellers and buyers of unlisted shares.

Recent regulatory shifts that will shape the next 12–36 months

1. SEBI tightening access and participation

In late October 2025, SEBI clarified and tightened rules around who can participate in pre-IPO placements — most notably restricting mutual funds from participating in pre-IPO placements (allowing them only to participate as anchor investors or in the public offer). This aims to limit the risk of mutual funds holding unlisted shares if an IPO is delayed or cancelled. This is a material change for institutional flows into pre-IPO deals and will reshape demand dynamics.

2. Warnings against unregulated platforms  and likely enforcement

SEBI has repeatedly warned investors about trading in unlisted securities on unauthorised electronic platforms and has taken action against some platforms. The message is clear: unregulated marketplaces exposing retail investors to illiquid, opaque unlisted securities will face scrutiny — and some will be shut down or forced to change business models. That raises the bar for platforms to become compliant and transparent.

3. Regulated pilot venues under consideration

At the same time, SEBI officials have signalled interest in creating a regulated pilot venue for limited pre-IPO trading (for example, trading between allotment and listing). If implemented, a regulated venue could help formalise price discovery, reduce grey-market distortions, and provide better investor protection  but it will also bring stricter entry criteria for participating platforms and intermediaries.

Market fundamentals and deal flow

VC funding recovered in 2024 (and continued into 2025), helping rebuild a pipeline of companies approaching IPO readiness. Large private financing rounds and notable pre-IPO placements (for example, several consumer and fintech names raising pre-IPO capital in 2025) demonstrate ongoing deal activity that fuels pre-IPO supply. However, IPO volumes and investor sentiment can be cyclical; platform operators and investors must plan for both hot and cool windows in public markets.

Platforms & intermediaries — who will win?

There are three likely winners in the evolving landscape:

1. Regulated exchanges or SEBI-approved venues — if the regulator pilots a venue, an authorised, transparent marketplace will attract institutional and compliance-sensitive flows.

2. Compliant marketplaces that upgrade governance — platforms that adopt strict KYC/AML, custody arrangements, and independent price discovery will survive SEBI scrutiny and win investor trust. Examples of active marketplaces (with varying regulatory models) include Planify, Sharescart and older players — but the market is fragmented.

3. Advisors & custodial intermediaries — trusted advisory firms that perform due diligence, fair pricing, and escrow/custody services will be critical to reduce execution and counterparty risk.

Risks every investor must understand

• Illiquidity & exit risk: many pre-IPO holdings can remain locked up or difficult to sell until an IPO or buyer emerges.

• Information asymmetry: unlisted companies disclose far less than listed companies; financials, governance, and related-party transactions may be opaque.

• Platform & counterparty risk: unregulated or poorly governed marketplaces increase the chance of fraud or settlement failure. SEBI warnings and enforcement actions have already targeted such platforms.

• Regulatory risk: policy changes (like the recent mutual fund restriction) can rapidly alter demand/supply and valuations.

Practical framework — RTR Unlisted’s approach for investors

As a marketplace/advisor focused on unlisted shares, RTR Unlisted recommends an investor due-diligence checklist and operating rules:

1. Verify platform compliance: check if the platform follows SEBI guidance, has transparent custody/settlement, and clear fee disclosures. (Platforms should publish audited financials and custody arrangements.)

2. Company due diligence: insist on audited financials, cap-table transparency, ESOP dilution schedules, and clarity on use of funds.

3. Valuation discipline: compare implied pre-IPO valuations to peers, recent institutional rounds, and public comps; avoid paying excessive premia driven only by hype.

4. Exit planning: treat pre-IPO as a medium to long-term allocation and have scenario plans (IPO, delayed listing, buyback, or secondary sale).

5. Limit allocation & diversify: cap exposure per deal and diversify across sectors and stages.

6. Prefer escrow/custodial settlement: insist on escrowed funds and transfer through regulated custodians to reduce settlement risk.

Opportunities that remain compelling

• Sector specialization: high-quality fintech, SaaS, and consumer tech companies with strong unit economics remain attractive for pre-IPO allocations.

• SME & SME-IPO ecosystem: growth in SME listings and dedicated SME exchanges may open earlier liquidity routes for smaller companies.

• Institutional co-investment: even with mutual funds limited, other institutions (PE, family offices, QIBs) may continue to supply capital into pre-IPO rounds  creating deal flow and validation for select opportunities.

How platforms must evolve to survive & scale

• Move to formal custody and settlement models (partner with recognised custodians/exchanges).

• Stronger disclosure & audit trails — publish transaction histories, valuations, and counterparty info (while respecting confidentiality).

• Standardised documentation — uniform purchase agreements, representations & warranties, and transfer mechanics help reduce dispute risk.

• Investor education & transparency — make risk disclosures standard and teach secondary market dynamics to retail users.

Short-term outlook (next 12 months)

• Expect greater regulatory clarity and enforcement. Platforms that do not proactively comply will find it hard to operate.

• Deal activity will remain concentrated in high-quality names that attract institutional anchor investors; retail access will persist but under greater supervision.

Long-term outlook (2–5 years)

• If SEBI launches a regulated pre-IPO venue or pilot, expect formal price discovery and improved liquidity during IPO windows; this could sustain a healthier secondary market for “pre-IPO adjacent” trading. The ecosystem will likely consolidate around a handful of trusted platforms and custodians.

RTR Unlisted’s closing viewpoint

Pre-IPO investing in India holds genuine opportunity  but the market is entering a phase where professionalism, compliance, and transparency will determine winners and losers. RTR Unlisted believes that well-governed platforms offering rigorous due diligence, custody, and clear disclosures will become the preferred on-ramps for both seasoned and newer investors. Investors should approach pre-IPO allocations with disciplined sizing, documented exit planning, and an emphasis on verified counterparties.

Actionable checklist (one-page)

• Confirm platform’s compliance & custody model.

• Request audited company financials and recent cap table.

• Limit allocation (suggested: single-deal cap 2–5% of private allocation).

• Insist on escrowed settlement and documented transfer mechanics.

• Maintain a 2–5 year liquidity horizon for core pre-IPO positions.

Sources & further reading

1. Reuters — India regulator bars mutual funds from investing in pre-IPO placements (Oct 24, 2025). Reuters

2. Economic Times — SEBI says mutual funds can’t take part in pre-IPO placements. The Economic Times

3. Business Standard — SEBI bars MFs from pre-IPO placements; allows anchor investments only. Business Standard

4. Reuters — SEBI warns against trading in unlisted securities via unauthorised platforms. (Dec 2024). Reuters

5. Bain & Company — India Venture Capital Report 2025 (VC market rebound context). Bain

6. Taxtmi / market reports — SEBI hints at regulated pilot venue for pre-IPO trading. TaxTMI

7. Platform examples & marketplaces: Planify, Sharescart, UnlistedStockTrades (representative market players). Planify+2Sharescart+2

8. Recent IPO/pre-IPO deal examples: Pine Labs IPO filing; Curefoods pre-IPO placement (2025). Reuters+1

9. Legal commentary on platform legality and investor cautions (Vinod Kothari). Vinod Kothari Consultants

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