Pre-IPO Investor Risks: How to Protect Your Interests?
Pre-IPO investing provides an opportunity to enter promising companies before they go public. This approach attracts private investors because it promises high returns, especially if the company shows growth after the placement of shares. However, pre-IPO is a high-risk investment format. In Russia, this market is only developing, so it is important to understand its features, potential risks and ways to minimize them. In this article, we will consider the key risks, popular platforms and examples of successful pre-IPO projects.
The risk of insufficient transparency of financial statements
Companies at the pre-IPO stage are usually not required to publish full reports on their activities. This limits investors in accessing key financial data and makes it difficult to assess the real state of the company. The lack of transparency increases the likelihood of an erroneous assessment of the value and prospects of the business, which can lead to loss of investment. To protect yourself from such risks, an investor should conduct detailed financial and legal due diligence.
Financial due diligence analyzes the stability of a company, its ability to generate profit, as well as the presence of hidden losses or debt obligations.
Legal due diligence allows you to find out the status of rights to the company's assets, assess legal risks and identify possible lawsuits or claims.
There are known cases in the Russian market where technology startups and fintech companies raised significant amounts, but due to the lack of available financial data and overly optimistic market forecasts, they did not live up to expectations. This is shown by examples of companies where investors lost significant amounts due to the lack of full transparency.
Regulatory risks and their impact on pre-IPO companies
In Russia, the legal framework for pre-IPO investments is only just being formed, and this creates additional risks. Changes in legislation can affect the company's activities and its profitability prospects, especially when it comes to fast-growing and regulated industries such as digital assets and fintech.
An example is the situation with tightening regulation in the field of digital assets. Several Russian cryptocurrency-focused startups have faced restrictions in their business after the introduction of new legislative norms. This has slowed down their development and negatively affected their profits, which has affected investors' income. Therefore, when investing in projects from regulated industries, it is important to consider that legal changes can significantly affect their profitability and investment attractiveness.
Liquidity risk and frozen funds
Liquidity is another important aspect to consider when investing in pre-IPOs. Investors often face a situation where their funds are frozen until the IPO, which can take several years. If a company decides to postpone the IPO, investors' assets remain illiquid indefinitely.
Several companies in the Russian market have already resorted to this approach, postponing planned IPOs. As a result, investors were unable to sell assets until the company went public, which led to a temporary loss of access to capital. It is important to be prepared for such a scenario, especially if you are counting on quick liquidity of your investments.
The launch of the OTC section of the Moscow Exchange and its advantages
An important milestone for the Russian pre-IPO market was the opening of the over-the-counter (OTC) trading section for pre-IPO projects by the Moscow Exchange. This OTC platform allows investors to buy shares in pre-IPO companies through brokers, and also includes a secondary market option for securities. This analogue of an investment platform offers several advantages:
Access through brokers, which simplifies the investment process.
A secondary market that allows investors to sell their assets before the company goes public, reducing the risk of frozen funds.
This gives Russian investors flexibility and liquidity, which is especially important for those who prefer not to hold assets long-term.
How to minimize risks: proven platforms for pre-IPO
When choosing companies at the pre-IPO stage, it is important to consider not only their prospects, but also the platform through which the investment is made. In Russia, such platforms are VTB Registrar, Raunds and Zorko. These companies check projects for sustainability and potential profitability, providing investors with a higher degree of confidence. Detailed data on companies and their financial position allow investors to better understand the risks and make informed decisions.
These platforms not only simplify access to companies at the pre-IPO stage, but also provide useful tools for analysis. Investors who choose such platforms can minimize their risks by gaining access to verified information and comprehensive analysis.
Our project's approach to protecting investors' interests
The Open Oil Market (OOM) project was tested in Skolkovo, where it received a grant under the University Startups program. Our project was approved by Skolkovo experts, which confirms its prospects and sustainability. We focus on transparency, providing access to complete data that allows investors to assess risks and potential benefits.
As part of the pre-IPO Open Oil Market, we also focus on compliance with legal and financial standards, which reduces risks for investors. Transparency and reliability of information help investors make informed decisions, avoiding possible losses.
Examples of successful pre-IPO projects in Russia
A successful example on the Russian market is the ANABAR project. It attracted significant funds at the pre-IPO stage, demonstrated stable growth and met investors' expectations. This shows that with a competent approach to selecting projects and careful analysis, it is possible to reduce risks and achieve stable investment growth.
Thus, examples of successful projects such as ANABAR confirm that, despite the risks, pre-IPO investments can be profitable. The main thing is to carefully check the information, focus on reliable platforms and conduct analysis.
Final thoughts and assessment of prospects
The pre-IPO market in Russia is just beginning to gain momentum, and its further development opens up broad prospects for private investors. However, it is important that each investor understands all the features and risks of these investments and approaches the process consciously. The development of the pre-IPO market can significantly strengthen the Russian stock market, attracting capital previously available mainly to foreign companies.
As an entrepreneur and founder of Open Oil Market, I see great potential in the fact that the pre-IPO market helps Russian companies attract financing at the stage of preparation for a public offering. This is especially important in the current economic situation, when domestic companies need support and resources to scale and grow. Russian pre-IPO projects can offer investors unique opportunities to diversify their portfolios, as well as stimulate the development of the domestic capital market.
This investment format can play a significant role in increasing the sustainability of the Russian stock market, expanding the circle of investors and reducing dependence on foreign sources of financing. If steps are taken to regulate and protect the rights of investors at this stage, this will attract even more participants, which, in turn, will increase liquidity and trust in the Russian capital market.
Seeing the rapid interest in pre-IPO and OTC platforms, I am confident that further development of this area will make the Russian stock market more competitive, sustainable and attractive to a wide audience of private investors.
