With modern-day brokers and revolutionary tech platforms, it has become much easier for retail investors (like you and me) to invest in the stock market. But have you ever wondered how to invest in private companies like Oyo Rooms, Chennai Super Kings and Reliance Retail?
Leading investor Rakesh Jhunjhunwala has been seen making crores by investing in companies before the IPO. For decades, private equity markets have been accessible only to high net worth individuals (HNIs) and venture capitalists like him. But things are changing! In this article, we will learn more about the private equity market in India and how you can invest in companies before listing on the stock exchange.
What is Private Equity?
We often see news of leading venture capitalists and HNIs investing in privately owned companies or startups in India. These investments are called private equity (PE) in market terms. It enables companies to carry out their day-to-day operations, working on innovative products or technologies, and accelerating growth. Such private investments are used for expansion, diversification or acquisitions. With their deep pockets, companies have direct access to profitable business models. As companies gradually grow and go public, these early investors and promoters sell their shares at very high value.
Over the past few years, India-based private companies and startups have grown by developing destructive products and technologies. By 2020, investment in the private sector will be 2.5 times greater than in the public sector. According to the EY report, PE and venture capital investment in Indian companies reached a record high of $ 77 billion in 2021, an increase of 62% over 2020. E-commerce, fintech and ed-tech continue to be the fastest growing sectors. In our country. Who does not want to invest in India Inc.?
Unfortunately, retail investors have always been barred from entering the private equity markets. Investment rounds and transactions of private firms are conducted for a total of millions of dollars, which is not pocket friendly for small investors. PE deposits also have a liquid and strict lock-in period. In most cases, there is a general lack of transparency in these transactions. When companies like Happiest Minds Tech, Nika and Latent View Analytics released their IPOs, most of us wanted to invest in them quickly. Also, buying shares of cheap companies is always the essence of investment.
How Can I Invest in Private Companies?
As retail investors, we are often looking for new ways to diversify our portfolios and earn better returns. Likewise, investing in the equity of private companies allows us to be part of their growth story. Such investments are now possible through a new platform called Leadoff, which aims to democratize private equity for Indians.
The digital platform essentially breaks the entry barrier and allows you to invest in prominent private companies. It cuts out the middlemen and time-consuming documentation processes to provide a seamless investment platform. You can invest in companies such as Chennai Super Kings, soon-to-be public Oyo Rooms, PharmEasy, and Reliance Retail with a minimum amount of just Rs 10,000! One can make rational investment decisions by going through the financial reports and important documents of these high-growth firms. Investors must always go through these reports thoroughly before investing.
How Does it Work?
Leadoff has established an extensive network of early investors, founders and other shareholders in privately owned companies. Thus, they source shares from various companies and transfer them directly to the users on its platform. Stock prices are assessed by the respective companies and their auditing firms. When you place an order, Leadoff delivers the shares directly to your existing demat account!
The platform provides bank-level security and a user-friendly dashboard so that you can keep track of your transactions. Positions/holdings can be exited via company share buybacks or at the time of public listing. Also, all transactions made in private equity shares are legal in India!
From taking the decision to invest to actually getting the shares, you will be able to execute transactions in 3 easy steps:
- Browse the company you’d like to invest in. Leadoff has handpicked several high-growth firms after a thorough screening process.
- Research about the company with the help of in-platform reports to make an informed decision.
- Make the payment, and the shares will be directly transferred to your existing Demat account in 24-48 hours.
Recently, we have witnessed most IPOs being oversubscribed and a few lucky investors enjoying significant listing gains. Imagine the income if you can get into action very early! Join the club of active investors passionate about the growth of India's private markets.
How to investment on Private Companies (CSK and Reliance Retail) via Leadoff
You can invest in stocks of some of the top unlisted companies in India in Leadoff.
Step 1 : Login the Leadoff Portal
Step 2 : Browse the company you’d like to invest in. Leadoff has handpicked several high-growth firms after a thorough screening process.
Step 3 : Research about the company with the help of in-platform reports to make an informed decision.
Step 4 : Make the payment, and the shares will be directly transferred to your existing Demat account in 24-48 hours.
Frequently Asked Questions
What are private markets?
In the private markets, investors acquire shares of a company that is still private and is not yet listed in the public markets or on the Stock Exchanges.
Who sells shares in a private company?
Existing shareholders of the company sell shares in the private markets
Is the company involved in selling shares?
No. This is a secondary off-market transaction and the Company is NOT involved in any way in the transaction.
Are the shares being sold in the Demat form?
Yes. The shares being sold are in the Demat form. Once you place an order, the shares will be deposited into your Demat account within 24-48 hours.
How do you assure the private deal?
Before engaging in any transaction, thorough due diligence of the supply partner or/and seller is performed to provide the appropriate comfort level.
Why should I choose Leadoff over other secondary marketplaces?
To facilitate excellent investments, every private deal placed on our site goes through a curation process and is authorized by our Investment Team. Before we provide you with the asset, we investigate and analyze every facet of it.
If a company is not listed, how come the shares are in the Demat form?
Any company which has more than 100 shareholders can pass a Board resolution and get its shares dematerialized with NSDL/CDSL.
What is the minimum amount one can invest in a private company?
Depending on the opportunity, the minimum amount can vary.
What’s the lock-in period for shares obtained in private markets?
If you purchase shares of a private company, you can sell the shares anytime you’d like before it lists on the public markets. As per SEBI rules, once a company is listed, purchased private shares have a lock-in for six months from the date of listing
What is the kind of returns one can expect in investing in private companies?
Depends on the Company and its management’s execution capabilities. In Equities, nobody can guarantee any kind of return.
What are the tax implications of investing in the private markets?
Capital gains on the sale of unlisted shares will be classified as long-term if held for more than 24 months. STCG on sale of unlisted equity shares is taxable at the applicable marginal tax rate. LTCG on sale of unlisted equity shares is taxable at 20% with indexation