How this startup is helping the retail investors invest in the unlisted market
CXOToday has engaged in an exclusive interview with Krishna Raghavan, Founder, UnlistedKart
- Nowadays Unlisted shares are gaining popularity among retail investors, What are unlisted shares and how to invest in them
Unlisted shares, also known as private or non-listed shares, are shares of a company that is not listed on a public stock exchange. These shares are generally traded over the counter (OTC) and are often issued by small or mid-sized companies, start-ups, or family-owned businesses. They may also be shares of larger companies that have chosen to remain private for various reasons.
Investing in unlisted shares has gained popularity among retail investors for several reasons. These shares may offer high growth potential, particularly in the case of start-ups, and may provide access to unique investment opportunities not available in the public market. Historically this is one of the asset classes that has helped most investors gain maximum wealth in comparison to other investment asset classes.
To invest in unlisted shares, follow these steps:
Research: Start by researching potential companies whose unlisted shares you’d like to invest in. Look for information on their management team, financial performance, industry trends, and growth prospects. Keep in mind that this information may not be as readily available as for listed companies, so you may need to use alternative sources like news articles, company websites, or industry reports.
Find a facilitator or platform: To buy unlisted shares, you need to find a facilitator like unlistedkart or a platform that deals in private shares or OTC markets. These facilitators or platforms may be specialized in dealing with unlisted shares or have a dedicated desk for private equity transactions. It’s important to choose a reliable facilitator or platform with a good track record.
Assess the risks: Investing in unlisted shares comes with a unique set of risks. These include limited liquidity, lack of regulatory oversight, and potential information asymmetry. Make sure you fully understand the risks associated with investing in unlisted shares before proceeding.
Negotiate and purchase: Once you’ve identified the company and found a broker or platform, negotiate the price and quantity of shares you’d like to purchase. Since these shares are not listed on an exchange, the price may be open to negotiation. Once you’ve agreed to the terms, complete the purchase, and the shares will be transferred to your demat account.
Monitor your investment: Keep track of your investment by staying informed about the company’s performance, industry news, and any potential exit opportunities. This could include the company getting listed on a public exchange, a buyback offer, or a merger or acquisition.
Remember that investing in unlisted shares can be riskier than investing in listed shares, and it requires a higher level of due diligence. It’s essential to be prepared for potential challenges, such as limited liquidity and information availability when investing in this asset class.
- Briefly explain UnlistedKart and what unique is Unlistedkart offering.
Unlistedkart is a premier marketplace, both offline and online, specializing in the buying and selling of unlisted securities in the country. With central partnerships with over 100 leading banks, wealth management institutions, funds, and family office institutions, Unlistedkart supports their secondary private transactions trading for investment portfolios. In under four years, Unlistedkart has executed nearly 8,000 transactions, amounting to more than 400 crores in revenue.
The primary services provided include:
- Purchasing and selling Unlisted Equities:
- Publicly deemed companies
- Private company transactions
- Assisting with secondary transactions in private companies
- Implementing liquidity programs for companies (targeting ESOP group holders, angel investors, seed investors, and funds) – have access to 200mn+ unlisted equities.
- How is Unlistedkart helping retail investors to ease their investing process in unlisted shares?
Unlistedkart is a reliable and popular marketplace among retail investors, specializing in unlisted company shares. By warehousing these shares, Unlistedkart mitigates risks related to both sellers and buyers potentially compromising their positions. To protect all parties involved, Unlistedkart conducts comprehensive KYC checks on sellers and buyers in accordance with RBI guidelines and provides ESCROW services for high-value transactions.
Unlistedkart offers impartial research reports that clients can use to learn about companies, while encouraging investors to perform their own due diligence for informed decision-making. The platform leverages its network to assist sellers in finding buyers when they wish to liquidate their unlisted equities smoothly. Most transactions are completed within the same day or 24 hours. Actively participating in thought leadership initiatives and regulatory discussions, Unlistedkart seeks to positively impact the ecosystem and reduce risks associated with unregulated assets.
- What are the risks involved in investing through UnlistedKart?
Most of the platforms that facilitate unlisted equities have similar risks associated. Investing in unlisted companies carries several risks that are distinct from those associated with investing in publicly listed companies. Here are some of the main risks involved:
Limited liquidity: Unlisted shares are not traded on public exchanges, which means there might be limited buyers and sellers available when you want to buy or sell these shares. This lack of liquidity can make it difficult to exit your investment quickly or at a favorable price.
Lack of transparency and information: Unlisted companies are not subject to the same strict disclosure and reporting requirements as public companies. As a result, financial statements, company performance, and other important information may not be readily available or up-to-date. This lack of information can make it challenging to conduct thorough due diligence and make informed investment decisions.
Regulatory oversight: Publicly listed companies are required to comply with various regulations and guidelines set by stock exchanges and regulatory authorities. Unlisted companies do not face the same level of regulatory scrutiny, which can lead to potential governance issues, financial mismanagement, or unethical practices.
Higher volatility: Unlisted shares can be more volatile than listed shares, as they are often subject to large price fluctuations due to low trading volumes and limited market information. This can result in significant gains or losses in a short period.
Valuation challenges: Valuing unlisted shares can be complex, as there is often limited information available, and traditional valuation methods may not be applicable. This can lead to difficulties in determining a fair price for the shares and assessing the potential return on investment.
Counterparty risk: When investing in unlisted shares, there’s a risk that the counterparty (the buyer or seller) may default on their obligations, such as failing to deliver the shares or make payment. This risk is typically higher in unregulated markets, where there is less oversight and protection for investors.
Fraud and scams: As unlisted shares are traded in less regulated markets, they can be more susceptible to fraud or scams. Investors need to be cautious and conduct thorough due diligence to avoid falling victim to such schemes.
Concentration risk: Investing in unlisted companies often involves a higher degree of concentration risk, as these companies tend to be smaller and operate in niche markets. This can make your investment more vulnerable to industry-specific risks and economic downturns.
To mitigate these risks, it’s essential to conduct thorough research, diversify your investment portfolio, and consider engaging professional advice before investing in unlisted companies.
- Since retail investors have various options to invest in the listed market, why should retail investors be keen to invest in the unlisted markets through Unlistedkart?
Retail investors might consider investing in unlisted markets for several reasons, even though there are various options available in the listed market. Some of these reasons include:
Diversification: Investing in unlisted markets allows retail investors to diversify their investment portfolios by adding exposure to different asset classes and industries. This diversification can help mitigate risks associated with investing solely in listed companies and can improve the overall risk-return profile of the portfolio.
Early-stage opportunities: Unlisted markets often provide access to early-stage companies and start-ups with high growth potential. By investing in these companies before they go public, retail investors have the opportunity to potentially benefit from significant capital appreciation if the company performs well and eventually gets listed on a public exchange.
Unique investment opportunities: Unlisted markets can offer investment opportunities not available in the listed market, such as niche sectors or family-owned businesses. These unique opportunities can provide investors with exposure to companies that have strong growth potential or are undervalued relative to their peers.
Lower correlation with broader market: Unlisted shares often exhibit lower correlations with broader market indices, as their performance may be driven more by company-specific factors than overall market trends. This can provide a measure of protection during periods of market volatility and downturns.
Potential for higher returns: While investing in unlisted companies is generally riskier than investing in listed companies, it can also offer the potential for higher returns. This is especially true for early-stage companies, which may experience rapid growth and generate substantial returns for early investors if they succeed.
Access to pre-IPO shares: In some cases, retail investors may be able to invest in unlisted shares of companies that are preparing for an initial public offering (IPO). By investing before the IPO, investors can potentially acquire shares at a lower price than they would during the IPO, potentially benefiting from the increase in share value after the company goes public.
However, investing in unlisted markets comes with inherent risks, such as limited liquidity, lack of transparency, and regulatory oversight. Retail investors should carefully consider these risks and conduct thorough due diligence before venturing into unlisted markets. Additionally, it’s essential to maintain a diversified investment portfolio and consult with a financial advisor to determine the appropriate allocation of assets to unlisted markets.
- How important is a startup’s financial performance in attracting funding from venture capitalists or other investors?
A startup’s financial performance is an important factor in attracting funding from venture capitalists (VCs) or other investors, but it is not the only consideration. Several aspects contribute to a startup’s attractiveness to investors, and financial performance is just one of them. Here are some factors that investors often consider when evaluating startups for potential investment:
Financial performance: Investors typically examine a startup’s financial performance, including revenue growth, profitability, cash flow, and burn rate, to gauge its financial health and growth prospects. Strong financial performance can signal a viable business model and the potential for future success.
Market opportunity: Investors look for startups that operate in large, growing markets or address a significant unmet need. A compelling market opportunity can often outweigh short-term financial performance, as investors may believe in the startup’s potential to capture significant market share in the long run.
Competitive advantage: A startup that has a unique value proposition, intellectual property, or a strong competitive advantage is more likely to attract funding. Investors are interested in backing companies that can differentiate themselves from competitors and maintain a sustainable competitive edge.
Business model: The startup’s business model is another critical consideration for investors. A scalable and sustainable business model can help investors project future growth and profitability, even if the current financial performance is not stellar.
Management team: A strong, experienced, and capable management team is often a significant factor in attracting investment. Investors want to back startups led by teams with a proven track record, relevant industry expertise, and the ability to execute the business plan.
Traction and customer validation: Evidence of market traction, such as a growing customer base, partnerships, or increasing sales, can help to offset concerns about financial performance. Customer validation, through testimonials or case studies, can also demonstrate the startup’s value proposition and potential for success.
Exit strategy: Investors, particularly VCs, are interested in startups that have a clear and achievable exit strategy, such as an IPO or acquisition. A well-defined exit strategy can give investors confidence in their ability to realize returns on their investments.
In summary, while a startup’s financial performance is an important factor in attracting funding, it is not the sole determinant. Investors consider a range of factors, including market opportunity, competitive advantage, business model, management team, traction, and exit strategy, when evaluating a startup for potential investment. A startup with strong financial performance may be more attractive to investors, but other factors can also influence investment decisions.
- What are some of the potential challenges that a company might face after going public through an IPO, and how can these be addressed?
Going public through an Initial Public Offering (IPO) can offer numerous benefits to a company, such as raising capital, increasing visibility, and providing an exit opportunity for early investors. However, it also comes with potential challenges that the company must address to ensure a smooth transition and maintain long-term success. Some of these challenges include:
Increased regulatory and reporting requirements: Publicly listed companies are subject to stricter regulatory oversight and must comply with various reporting requirements, such as filing financial statements, periodic reports, and disclosing material information. To address this challenge, companies can invest in robust financial and compliance systems and engage experienced legal and accounting teams to ensure accurate and timely reporting.
Market pressure and short-term focus: Public companies often face pressure from shareholders, analysts, and the market to meet or exceed quarterly earnings expectations. This pressure can lead to a short-term focus on financial performance at the expense of long-term growth initiatives. To manage this challenge, companies should communicate a clear long-term vision and strategy to investors, maintain open lines of communication, and resist the temptation to make decisions based solely on short-term market pressures.
Share price volatility: Stock prices can be influenced by factors beyond the company’s control, such as market conditions, economic news, or investor sentiment. This volatility can impact the company’s perceived value and create uncertainty for management and employees. To mitigate this challenge, companies should focus on executing their long-term strategy, maintaining transparent communication with shareholders, and highlighting the company’s fundamental strengths.
Increased scrutiny and disclosure: Public companies face greater scrutiny from investors, regulators, and the media. The increased level of disclosure can expose sensitive information to competitors and may require sharing strategic plans and financial data. To address this challenge, companies should develop a proactive communication strategy, engage with investors and analysts regularly, and carefully manage the information disclosed while complying with regulatory requirements.
Talent retention and compensation: After going public, a company’s stock may be subject to lock-up periods or vesting schedules, which can impact employee retention and motivation. Furthermore, the increased scrutiny and pressure that comes with being a public company may affect employee morale. Companies can address these challenges by developing competitive compensation packages, offering employee stock options or other equity incentives, and fostering a strong company culture that supports and values employees.
Corporate governance and board management: Public companies are required to adhere to higher standards of corporate governance, which may involve changes to the company’s board structure, composition, and responsibilities. Companies can address this challenge by assembling a diverse and experienced board of directors with the necessary skills and expertise, ensuring compliance with applicable governance requirements, and maintaining an ongoing commitment to strong corporate governance practices.
In summary, while going public through an IPO offers several benefits, it also presents potential challenges. Companies can address these challenges by implementing robust financial and compliance systems, focusing on long-term growth, communicating effectively with investors, managing talent retention, and maintaining strong corporate governance.
- What are the minimum returns that one can expect when investing in an unlisted market through your platform?
It is difficult to provide a specific minimum return expectation when investing in unlisted markets, as returns can vary significantly depending on the individual company, industry, and market conditions. Unlisted investments carry a higher degree of risk compared to listed investments, and returns can range from substantial gains to significant losses.
The potential returns for unlisted investments depend on several factors, including:
Company performance: The financial performance and growth of the unlisted company will greatly influence the returns on investment. Companies with strong revenue growth, profitability, and a scalable business model may deliver higher returns compared to those with weaker financial performance.
Market conditions: Market conditions and trends in the industry or sector can impact the returns on unlisted investments. For example, if the industry is experiencing rapid growth, there may be higher demand for shares, leading to increased valuations and potential returns.
Stage of investment: The stage of the company’s development can also affect potential returns. Early-stage investments in unlisted companies may offer higher returns if the company successfully scales and grows, but they also come with a higher risk of loss.
Timing and exit strategy: The timing of the investment and the exit strategy, such as an initial public offering (IPO) or acquisition, will impact the returns on unlisted investments. Successful exits can lead to substantial returns, while unsuccessful exits or lack of exit opportunities can result in limited or negative returns.
Valuation: The initial valuation at which the investment is made will play a crucial role in determining returns. If the investment is made at a lower valuation, the potential for higher returns may be greater, but this must be balanced against the inherent risks of investing in unlisted companies.
Given the significant variability in potential returns, investors should not rely on a minimum return expectation when investing in unlisted markets. Instead, they should carefully consider the risks and potential rewards, conduct thorough due diligence, and maintain a diversified investment portfolio to mitigate risks and optimize returns.
Historically, over a three-year rolling period, investors have achieved a Compound Annual Growth Rate (CAGR) ranging from 20% to 40% based on their selection of a basket of unlisted stocks, considering diversified risk profiles.
- There has been a boom in the unlisted space recently, how has Unlistedkart helped in contributing to the space?
In the recent boom of the unlisted space, Unlistedkart has played a significant role in contributing to this growth by offering a range of services and solutions that cater to the needs of retail investors and other market participants. Some of the ways Unlistedkart has helped include:
Providing a marketplace: Unlistedkart serves as a leading marketplace for buying and selling unlisted securities, offering retail investors an accessible platform to participate in the unlisted market.
Ensuring trust and security: By conducting thorough KYC of its sellers and buyers in compliance with RBI requirements, Unlistedkart helps to maintain a secure and trustworthy environment for transactions. Additionally, Unlistedkart offers ESCROW services to protect high-value transactions, ensuring that parties are safeguarded against potential risks.
Facilitating secondary transactions: Unlistedkart assists in facilitating secondary transactions in private companies, enabling investors to liquidate their unlisted equities comfortably and efficiently. This support contributes to the overall liquidity and growth of the unlisted market.
Offering research reports and guidance: Unlistedkart provides neutral research reports to help clients gain insights into various unlisted companies. By encouraging investors to conduct their own due diligence, Unlistedkart promotes informed decision-making and fosters a more robust and healthy unlisted market ecosystem.
Building partnerships: Unlistedkart has established strong partnerships with banks, wealth management institutions, funds, and family office institutions, further expanding its reach and influence within the unlisted market space.
Thought leadership and regulatory contributions: Unlistedkart participates in thought leadership initiatives and contributes to regulatory direction, helping to shape the future of the unlisted market and ensure its continued growth and success.
By offering these services and fostering a secure, transparent, and efficient marketplace, Unlistedkart has significantly contributed to the growth and development of the unlisted market space.
- Till now, how many retail investors have invested through your platform, and how much amount has been invested?
At present, our aim is to organically educate retail investors and foster growth within the unlisted equities ecosystem, while taking into account the inherent risks associated with such investments. We have scaled many features to facilitate inventory order and customer servicing. In addition, we are working to establish a network of private investors with a primary focus on B2B interactions. Most transactions involve institutional investors, with average transaction sizes ranging from a few thousand to lakhs. Although in under a year, we have achieved more than 50,000 organic downloads and have over 10,000 retail users, resulting in investments amounting to several crores.