BackPre-IPO funds in vogue as tech cos look to go public
The technology sector will play a key role in Indian stock markets with the strong pipeline of firms filing for IPOs
PremiumDomestic investors, including family offices and high net-worth individuals (HNIs), are pouring money into pre-initial public offering (IPO) funds to get early access to India’s major tech companies, which are getting ready to hit the stock markets.
Several late-stage, pre-IPO funds have been raised in the past six months, with a strong focus on tech companies.
These include Edelweiss Wealth Management’s Crossover Opportunities Fund, which has raised ₹1,500 crore so far and plans to take the corpus of this fund to as much as ₹7,500 crore in the next 12-18 months. Trifecta Capital has raised ₹1,000 crore for its late stage and pre-IPO venture capital fund, while Kotak Investment Advisors has raised ₹1,386 crore and IIFL Wealth is raising up to ₹2,000 crore for its pre-IPO fund that will focus on tech companies.
Most venture capital money in India is offshore capital and domestic investors have thus found themselves shut out of some of the biggest success stories of the last decade. As such, these pre-IPO funds offer a chance to domestic investors to enter these companies ahead of them going public and thus realize significant value creation.
“Of the billions that are invested in India by private equity and venture capital firms, not even 10% is domestic capital. Most of our new-age technology companies are majority foreign owned with very little Indian capital. Why shouldn’t Indian investors have access to these companies? There is a strong demand and hence these pre-IPO funds are doing well with HNIs and family offices," said Anshu Kapoor, president and head, investment management, Edelweiss Wealth.
“The tech businesses have matured now and just like the cycles seen in the US in the early 2000s or with the Chinese tech companies after Alibaba listed (in 2014), the Indian tech cycle is only just starting and thus there is a big opportunity for investors to enter these companies before they go public," Kapoor said.
In the coming years, the technology sector is going to become a significant part of the Indian stock markets with Zomato’s stellar listing and the strong pipeline of tech companies that are filing for IPOs, such as Paytm, Mobikwik, Nykaa and PolicyBazaar.
“In the US and China, around 15-20% of the market capitalization comes from internet companies, but in India, there is hardly any meaningful opportunity in the listed space. However, the Indian internet economy is today at an inflection point and will witness very high growth over this decade. This is a massive opportunity and there will be large outcomes. IPOs will emerge as a major exit route for the tech companies," Chetan Naik, executive vice president, fund manager, IIFL Asset Management Ltd, said in an interaction with Mint in March.
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