A buoyant initial public offering (IPO) market has prompted investors to invest in so-called pre-IPO financing rounds as a means to placing sizeable bets on companies that are about to go public. So far this year, companies have raised at least $600 million through pre-IPO funding rounds. It is not just private equity funds and dedicated pre-IPO funds that are looking for these opportunities. Several public markets-focused institutional investors such as hedge funds, family offices and high net-worth individuals, too, have tapped pre-IPO financing opportunities. According to industry experts, one of the major factors for the surge in pre-IPO funding rounds is the need of investors to achieve meaningful allocation of shares. To be sure, while pre-IPO rounds guarantee allocation, shares bought before an IPO come with a one-year lock-in from the date of listing. However, given the successful run the IPO market has seen so far, investors don’t appear to be fazed by the risk of a lock-in period, when they can’t sell the stocks.

(Live Mint)