Things People Often Overlook About Unlisted Companies

What is the Reason Companies Stay Unlisted? Understanding Private Companies in India

Everyone knows going public is the pinnacle of a company's success.

IPOs grab the headlines and the company's founder is interviewed on a business channel and suddenly a company is visible to millions for the first time. In an outsider's view, it seems like the natural progression of a growing company.

But companies don't work that way.

Well-known, large companies that match the informality for listing stay private, some companies delay listing for years, whereas others stay private for much longer.

So why Do Companies Stay Unlisted?

In many cases companies stay unlisted for strategic reasons. Keeping a company privately owned gives it the flexibility, control and ability to simply take it slow and focus on long term growth, rather than the short term market.

At SN Capital, it is one of the most frequent questions that we receive from people trying to understand the private market. Everybody sees that all growing companies are building towards an IPO, but some are not. They took a different route.

What Does it Mean for a Company to Remain Unlisted?

Simply put, an unlisted company is a company which is not listed on an exchange like NSE or BSE. 

But it does not indicate that they do not have scale or growth prospects. Several private companies are highly profitable, operate in multiple markets, employ thousands of employees. 

They are privately held in terms of ownership, not available for public trading. 

You might be surprised to know that many private companies are not such small or nosy nascent startups. In fact, many mature established companies choose to stay private because it is more suitable for their business goals. 

And that is one of the reasons why there is a lot of chatter on the topic of unlisted shares. More and more people start to realize that some success stories have run for years before they went public. 

Control: The Biggest Reason Many Companies Stay Private 

A few words with founders and managers, and this keeps coming up: control.

The moment a company is listed it has entered a whole new universe: it must now report to a mass of shareholders, a huge number of analysts will now be analysing it, and its quarterly outcomes will be a watermark for others...

Which is good news for some companies.

But it can be bad news for other companies.

Private companies have more autonomy to choose what they would like to be in five years' time instead of constantly tweaking themselves to how their shareholders feel about them next quarter.

For example, a company may want to invest significantly in new technology, launch itself into a new market or commence a long-term research project. It is possible that Management will prefer to proceed with these activities without overthinking the reactions of its investors and their respective companies to such news.

This is one of the best aspects of remaining private for many companies.

Going Public Is More than Just Meeting Expectations

People will usually focus on the capital raised when news of a company going public is announced. But what is often not mentioned is the work that follows.

Listed companies face extensive disclosure responsibilities, governance arrangements, reporting obligations and compliance duties. We understand the reasons why they should have such responsibilities but they also come with high costs in time, capital and management effort.

For a company under growth, the question becomes quite clear:

Do we have to take on these responsibilities at the moment?

To most of us, the answer is no.

A private company can focus management’s attention on growing the business, rather than on public market expectations.

Privacy Is a Strategic Advantage

Assume you spent many years building up a sound business, scouting the market, investing in process improvements and building the business to that robot-like stage where we can no longer be seen in front of our competitors.

Now, assume you are using your humble nail set and put in a huge bunch of these improvements and investments into public, with a great deal of headache.

Well... that is the reality of public listing.

Public entities must disclose a tremendous amount of information about their business risks, financial performance and strategic movements.

As a private company, you have more flexibility in remaining confidential.

This can have a positive effect for those companies that operate in highly competitive businesses.

You can keep certain plans, expansion strategies and operational details private.

Why Some of The Best Unlisted Companies In India Stay Private

One of the most pervasive myths in the market is that a company with great business, by definition, must eventually get on a public listing.

That has not been the world story so far.

Some High Performing Unlisted Companies have now spent decades pushing forward their businesses as private companies and have shown you that company quality is not linked to whether it is listed or not.

Some companies don't need external capital immediately.

Some companies value the operational flexibility of the private market.

Some companies wait until they're ready to maximise long-run value.

The main point is that a private decision to stay unlisted is not necessarily a sign of weakness, but would rather be a pure strategic decision as a result of a thorough consideration of all other options before making a decision.

Why Are Pre-IPO Companies So Interesting?

With interest in the private market increasing, people start becoming curious about companies that are yet to get listed in the stock market.

And thus starts the conversation with a pre IPO share.

Many larger firms remain private for a period of years before a public offering. During this period of time, it is quite common for market players to keep an eye on company developments, funding activity, performance and industry positioning.

Pre IPO investment has become increasingly popular over the last couple of years for an obvious reason - investors want to know the businesses before they know them via public markets.

Sure, every company has its own journey. Not every private company will go public, and not every company that does go public will end up being successful.

But people should learn about what goes into it prior to a jump in price on the public market so they can better understand what a company has gone through over a period of time.

What Most People Don’t Talk About Private Companies

When you talk about private companies, most of it’s about growth potential.

Most of the way we talk about private companies isn’t about the differences in the practical aspects of private versus public markets.

The process isn’t the same, for instance.

Transactions in the public market occur on stock exchanges. In the private market, the transaction process is usually something different and can involve many more onerous documentation settlement steps.

Information access can differ.

Publicly listed companies give out a lot of information on a regular basis. Private companies are less likely to give out a lot of information, so people who want to jump into the private market usually have to do a lot more research before they can form an opinion on a particular company.

This is just not an indicator of one market being better or worse. It simply is a difference.

People who want to understand the differences are one step closer to learning about unlisted shares for investments or learning more about the private market ecosystem.

How SN Capital Makes Private Companies More Transparent For Individuals

The private market can be an alien world for many people.

There are many questions regarding documentation, company information, settlement timelines, taxation and transaction process.

And that is why we need guidance.

This is why at SN Capital we believe that we should be helping people understand how the private market works, and the process around it.

Whether it’s researching a company, understanding private market transactions or just realizing how investment decisions are different in the private market, having clear information helps make a difference.

The aim isn’t to hype a particular opportunity.

The aim is to increase understanding.

Because more often, an informed decision is a better decision.

Final Thoughts

It isn’t that every company wants to be listed.

For many businesses there are valid reasons to remain private, to stay true to their control, stay patchy, stay compliant, stay focused and grow ahead of the market. 

While this in particular helps to understand why companies choose to remain unlisted, it also provides an insight into how companies do business before they list and gives a reason why discussions around unlisted shares, private companies and pre IPO investment opportunities are ever gaining momentum.

At SN Capital we believe that understanding the private market begins with asking the right questions. The more there are who know about how private businesses work, the better placed they are to confront opportunities, risks and trends in this fast growing segment. 

FAQs

Where to buy unlisted shares in India?

There are lots of platforms in India, like specialized intermediaries, private market platforms, and firms that facilitate transactions in the unlisted market, from where a user can invest/buy. You can contact them from the website or you can buy online from the websites.      

What is the risk of buying unlisted shares?

 Common risks include lower liquidity, limited public disclosures and difficulty determining fair value. It is essential to understand the company and the transaction process before investing or building opportunities in the unlisted market.

How are unlisted companies different from listed companies? 

The main difference is that listed companies trade on recognized stock exchanges and are subject to public disclosure requirements, whereas unlisted companies operate privately, and their shares are transferred through private transactions rather than stock exchange platforms.