How do I buy pre-IPO stocks?

Starting a pre-IPO stock investment journey in Nepal offers an exciting opportunity for investors to capitalize on a company's growth trajectory before its public appearance. The first of many important steps in the process is to have a thorough understanding of what pre-IPO equities are.

What is pre-IPO stock?

These equities are shares that the firm makes accessible to a small number of investors before its first public offering (IPO). Pre-IPO equities are generally only available to workers of the firm, high-net-worth individuals, and institutional investors. They present a rare chance to interact with a company's potential for growth and success early in its corporate journey.

Regulating bodies and risk concerns have unfortunately made it impossible for the general public to apply for pre-IPOs in Nepal at this time. Institutional investors and accredited high-net-worth individuals are the only ones with access to pre-IPO prospects people. However, here are some best shares to buy for investment in Nepal.

Why is pre-IPO not available to the general public?

Regulatory Constraints

The Securities Board (SEBON) in Nepal is in charge of regulating the process by which businesses sell their shares to the general public through IPOs. SEBON creates regulations to make sure businesses adhere to certain standards while going public.

Limited Availability

Before a firm goes public, pre-IPO shares are usually made available to employees, high-net-worth individuals, and institutional investors. These shares, however, are scarce and unavailable to the broader public. Before the public listing, the main goal is to raise money from insiders or strategic investors.

Risk and liquidity

Investing in pre-IPO equities carries greater risk because there's a potential the company won't perform as anticipated and there may not be as much liquidity (buyers and sellers). Regular investors should generally hold off on purchasing a company's stock until after it goes public. By then, there is a greater market for buying and selling, and more information is available.

Company valuation and pricing

Negotiations between a corporation and private investors are frequently used to determine a company's valuation before its initial public offering (pre-IPO). These assessments may not, however, always reflect the company's true market value. 

The assessment and pricing process is more thorough and transparent when a business becomes public, guaranteeing a fair and accurate portrayal of its value.

How can you apply for pre-IPOs?

The procedures for both submitting applications and checking IPO results, as well as conducting pre-IPO activities, are identical.

• Open a Demat account.

• Log in to your Mero Share account.

• Click on My ASBA.

• Choose the company whose IPO you want to apply for.

• Enter the number of units you want to buy (usually 10 units are recommended).

• Provide your CRN (Client Relationship Number), which your bank provided.

• Click Proceed to submit your application

One of the most noticeable distinctions is that, in contrast to an IPO, it occurs in a private firm rather than a public one.

What are the risks associated with pre-IPO stocks?

The Underperformance of the Company

This risk includes the potential for the financial performance and business operations of the company to fall short of expectations, which might lower the value of the pre-IPO stocks and cause investors to lose money.

Restricted Market Liquidity

The possibility of restricted market liquidity makes it difficult to complete transactions swiftly because there can be fewer buyers or sellers of pre-IPO equities. The ease with which investors can purchase or sell shares may be impacted by this decreased liquidity, which could affect the companies' total market value.

FAQs

1. Can I sell my pre-IPO stocks?

Similar to an IPO, the secondary market allows owners of pre-IPO equities to sell them. The increased value of pre-IPO equities has led to a surge in popularity for this sector. For people looking to convert their assets into cash, it's a wise option.

2. Is it good to buy pre-IPO stocks?

Yes. Compared to regular stocks, pre-IPO stocks offer you a better value for your money.

3. Is pre-IPO investing legal?

Pre-IPO shares are made available through secondary markets for private shares or to a select group of investors who have a particular connection to the business. There may be specific regulatory restrictions on these shares.

4. What are the disadvantages of pre-IPO?

Even after applying for a pre-IPO, a private firm may choose not to go public. Furthermore, only a small number of carefully chosen investors may wish to trade, making it challenging to purchase and sell shares in unlisted companies. Therefore, poor liquidity is possible.

5. How do I sell pre-IPO shares after listing?

Following regular stock trading processes, you can sell your pre-IPO shares through a registered stockbroker once a Nepalese firm listings on the Nepal Stock Exchange (NEPSE).

Conclusion

Investing in pre-IPO stocks in Nepal provides early access to a company's growth but is limited to institutional investors and high-net-worth individuals due to regulatory constraints. Risks include potential underperformance, restricted market liquidity, and uncertainties in valuation. To participate, investors need a Demat account and follow specific steps. While pre-IPO stocks offer better value, they come with risks and limited liquidity. Once a company goes public, pre-IPO shares can be sold through registered stockbrokers on the Nepal Stock Exchange (NEPSE).