Uncovering Untapped Potential: Why HNIs Should Consider Secondary Sales in the Unlisted Market

In the early years of India’s financial markets, investment options were largely confined to public stocks, government bonds, and a small range of financial instruments. Venture capital (VC) and private equity (PE) made their entry in the late 1990s and early 2000s, predominantly led by large institutions and global players. This left high-net-worth individuals (HNIs) with limited opportunities to participate. To gain access to the unlisted space, ultra-high-net-worth individuals (UHNIs) and successful entrepreneurs formed angel networks, which played a pivotal role in structuring and supporting the emerging startup ecosystem.

Over time, some of these networks transformed into funds or joined established institutional players. After the introduction of Alternative Investment Funds (AIFs) in 2012, VC and PE funds began raising capital from HNIs and UHNI families, giving them indirect exposure to startups and unlisted companies. However, these investors had no direct control over their investments.

Why HNIs Started Exploring Direct Investments

As some funds underperformed, HNIs shifted towards direct investments in companies, particularly in sectors where they could use their expertise and offer strategic input. This trend has fueled the growing interest in unlisted shares. In fact, private equity investments in India reached $15 billion in 2024, marking a 46.2% increase compared to FY23. While early-stage startups still attract attention, there has been notable growth in investments in pre-IPO companies and secondary shares. Secondary deals, where shares are sold by existing investors to new ones without the company receiving any funds, have become increasingly common. For example, secondary sales by private equity firms more than doubled to ₹87,348 crore in 2023.

Understanding the Risks and Rewards

Investments in early-stage startups carry a high degree of risk due to the lower success rate of startups compared to established companies. On the other hand, late-stage or pre-IPO investments, often in companies that have undergone multiple funding rounds, offer comparatively lower risks and the potential for attractive returns if these companies perform well.

Secondary deals in the unlisted market have increased in recent years, creating opportunities for HNIs, UHNIs, and even retail investors to participate. Online platforms like Precize have facilitated these transactions, providing access to investors seeking exposure to this asset class.

An Economic Times article highlights a diversification strategy of allocating 50% to equity in listed spaces, 30% to debt, and 20% to unlisted stocks. While this allocation may vary among investors it’s important to do your due diligence before making any investment decision. However, challenges such as high valuations and complex share transfer processes, which can take up to six to nine months, exist in this market. 

Accessibility and Evolving Market Dynamics

Despite the challenges, platforms like Precize have simplified the process for investors. With a minimum investment amount of ₹10,000, investors can access unlisted shares in just three steps, with shares transferred to their depository account within 24–48 business hours. This ease of access has contributed to the increasing popularity of unlisted shares among investors seeking to diversify their portfolios.

IPO trends in recent years have also fueled interest in the unlisted space. For instance, in FY24, 76 IPO listings achieved an average listing gain of 29%. However, the limited allotment of IPO shares has driven many investors to explore secondary sales as an alternative route to acquire shares of companies they believe hold significant growth potential.

Conclusion

The unlisted shares market in India has evolved considerably, becoming more accessible to a broader group of investors. However, it's crucial to conduct thorough research before investing, as not all companies guarantee high returns or positive IPO outcomes.

While unlisted shares offer potential opportunities, they also come with risks that need careful consideration. For those looking to diversify beyond traditional asset classes, Precize provides access to both Private Equity and Private Credit opportunities.

So reserve access to diversify your portfolio.

Disclaimer: This information is for private use only and does not constitute investment advice. Recipients must assess risks and seek advice from financial, legal, and tax professionals. Private market investments carry risks, and there are no guarantees of returns or capital protection. We are not liable for investment decisions.