Pre-IPO and Post-IPO Stock Price Volatility

The stock market of India has recently witnessed the craze of the Initial Public Offerings. It offers the investors with potential opportunities to take part in the investment options successfully. Several prominent IPOs, like Nykaa, Zomato, LIC, etc., have apprehended the attention of various investors. 

Since IPOs often attract the interest of prominent investors, it represents an important question. Is it possible for retail investors to invest in firms that aren't listed yet? These unlisted shares are popularly known as the pre-IPO shares. It presents a surviving market for institutional investors, retail investors, and individuals with high net worth. 

Then comes the post-IPO stock as the last phase in the IPO cycle. These are available for trading on the public stock exchanges once the firm completes its IPO. Both retail and institutional investors can access these shares via the secondary market. 

Let's get into the pre- and post-IPO stock price volatility details, highlighting the comparative analysis between the two. 

Overview of the IPO Cycle

The IPO cycle encapsulates the comprehensive sequence of procedures and phases a private company navigates to transition into a publicly traded entity. Simply put, it signifies all the involved steps in moving from private ownership by specific investors towards offering shares of the company to an expansive public audience via stock exchange facilitation.

A Detailed Understanding of the IPO Cycle

To cultivate a comprehensive understanding of the IPO cycle, one must understand the essential stages that compose it. Thus, a detailed explanation becomes imperative. Below, you will find an exhaustive listing of all these phases:

Pre-IPO Phase
The pre-IPO phase marks the beginning of various tasks in the share market of India. Firstly, the company prepares for an IPO by evaluating its financials and determining its valuation. Secondly, it must comply with regulations, which include investor presentations and participating in roadshows. These activities aim to execute a successful investment offering.

IPO Phase
The company initiates the second stage by filing a registration statement with the relevant regulatory authority. This comprehensive document includes detailed financial information about the company, risk disclosures, operational details, and other pertinent disclosures. The regulatory authority also reviews this statement to confirm its compliance with rigorous financial and legal standards.

Book-Building or Marketing Phase
Upon the regulatory authority's approval of the registration statement, the company and its underwriters engage in marketing efforts. They aim to cultivate interest and demand among retail investors. Concurrently, they present potential investors with an investment opportunity. They further collect indications of interest or bids within a pre-determined price range. It is a crucial part of this dynamic process.

Offering or Subscription Phase
During this phase, we determine the final offering price based on the demand generated in the book-building phase. They offer allocated shares to investors at a specified purchase price. The company receives proceeds from these share sales, which it can then utilise for various purposes such as debt repayment, expansion, and development or research furthering its objectives.

Post-IPO Phase
After the offering phase concludes, a stock exchange lists the company's shares and trading in the secondary market commences. The market's demand and supply drive stock price volatility fluctuations, while investors can transact shares freely. This action provides the company with broader investor access, increased liquidity potentiality as well as growth opportunities including acquisitions.

A Comparative Analysis Between Pre-IPO and Post-IPO Stock

Investors must comprehend the unique characteristics, rights, and valuation methods of both pre-IPO and post-IPO shares. This blog offers a comparative analysis across various parameters like share transfer, voting rights, liquidity, returns, and their risk profile in depth.

Share Ownership and Transferability
Founders, employees, and private investors own pre-IPO shares. However, restrictions on share sales exist due to the restricted transferable nature of these shares imposed by the private company's by-laws. Board approval and existing shareholders' right of first refusal are necessary for any sale. Transferability improves closer to the IPO.

After an Initial Public Offering (IPO), the company lists shares on a public exchange. Any investor can freely buy or sell these through stockbrokers. However, lock-in restrictions may apply to only promoter shares for one to three years following their listing. Overall, post-IPO shares are highly liquid.

Shareholder Rights 
In a private company, pre-IPO shareholders enjoy better voting rights, and possess information rights and inspection privileges. They actively participate in major decisions prior to an initial public offering. It is important to note that these prerogatives are not evenly distributed among all investors and minority stakeholders bear limited responsibilities.

After an Initial Public Offering (IPO), minority shareholders acquire elevated rights such as exit options, dividends, and the ability to vote on Annual General Meeting (AGM) resolutions. However, post-IPO often witnesses a decrease in promoter shareholding, which results in the reduction of their privileged rights. The influence of retail investors holding small share quantities remains limited.

Liquidity and Exit Options
Pre-IPO investors experience poor liquidity. They can only limit their exit options to secondary share sales or buybacks, a decision solely within the company's discretion. Consequently, many initial backers find themselves locked in for extended periods and unable to liquidate their shares before the IPO.

Following the Initial Public Offering (IPO), stock exchanges list shares for immediate liquidity. Trading on the exchange at the prevailing market price sometimes offers an exit strategy. Consequently, IPOs facilitate an exit route for both pre-IPO investors and founders alike.

Share Valuations 
Company fundamentals, comparable, and negotiations between investors and founders determine the pre-IPO share value. Valuations employ methodologies such as discounted cash flow analysis, ratio analysis, and net asset value. These methods require subjective assumptions of growth and risk.

Market forces of demand and supply on the exchange dictate post-IPO share prices. Investor sentiment, performance expectations, and sectoral factors shape the share price. Compared to pre-IPO valuations, it offers a higher degree of transparency and objectivity.

Financial Reporting
Pre-IPO, private companies bear minimal financial reporting responsibilities to their shareholders. However, they may only infrequently prepare basic accounting statements. This information asymmetry exacerbates the risks investors face.

After an Initial Public Offering (IPO), the company must adhere to stringent public disclosure requirements. These include mandatory posts such as quarterly financial results, annual reports, and media releases. This increased emphasis on financial reporting and greater transparency are intended to enhance investor decision-making.

Risk Profile
Investing pre-IPO entails elevated risks due to incomplete disclosure of company details and the absence of a public financial track record. Projections and growth assumptions may not always come to fruition, and the lack of liquidity can lead to investment lock-ins. 

Conversely, historical data, a financial track record, and ongoing disclosures facilitate more thorough risk analysis for listed companies. Investors can diversify or exit investments in response to negative signals, and risks are mitigated by increased liquidity and transparency.

Regulatory Oversight
Before going public, private companies operate under limited regulatory oversight. Only fundamental company law provisions regarding board structure and shareholder rights are applicable, with SEBI regulations being relevant to a certain extent.

Following the IPO, companies fall under the close scrutiny of securities regulators such as SEBI, exchanges, and other relevant authorities. Continuous monitoring ensures compliance with listing regulations, prevents insider trading, and safeguards investor interests.

Costs and Expenses
Raising funds pre-IPO through private equity or venture capital incurs several expenses, including share issuance fees, due diligence charges, legal expenses, and consulting fees. However, these costs are generally lower than those of a public offering.

In contrast, IPOs entail significant expenses such as underwriting fees, advertising costs, fees for merchant bankers, and printing expenses, often amounting to millions. Additionally, ongoing listing fees and compliance costs further reduce profitability.

Information Access
Pre-IPO companies offer minimal information, such as basic financial statements, even to their existing shareholders. Detailed business data, growth strategies, and competitor benchmarking may not be accessible.

Following the IPO, public disclosures, analyst calls, and investor conferences provide thorough and reliable information about the company's business operations and future prospects. This helps to minimise information asymmetry.

Difference Between Pre-IPO and Post-IPO Stock Price Volatility 

Here's a table summarising the key differences between Pre IPO and Post IPO stock price volatility:


Pre-IPO Stock Price Volatility

Post-IPO Stock Price Volatility


Private markets (limited participants)

Public markets (open to all investors)


Low liquidity (fewer buyers and sellers)

Higher liquidity (more buyers and sellers)

Information Availability

Limited information and transparency

More information and disclosure requirements

Price Discovery

Limited price discovery mechanism

Efficient price discovery through market forces

Trading Volume

Lower trading volume

Higher trading volume

Investor Base

Limited to accredited investors, VCs, and insiders

Broader investor base (institutional and retail)


Fewer regulations and disclosure requirements

Stringent rules and disclosure requirements


Investor sentiment, funding rounds, company performance

Market sentiment, company performance, analyst recommendations, news

Lock-up Period


Lock-up period expiration can cause volatility


Advantages and Disadvantages of an IPO

The main aim of an IPO is to secure capital for a business, which is accompanied by various potential advantages and disadvantages.


One significant benefit is that an IPO grants the company access to investment from the entire investing public, enabling it to raise capital. This simplifies acquisition deals and enhances the company's visibility, prestige, and public image, potentially boosting sales and profits.

Moreover, the heightened transparency mandated by quarterly reporting typically enables a company to secure more favourable terms when borrowing credit than a private company.


Businesses might encounter various drawbacks when considering going public, leading them to explore alternative strategies. Some significant disadvantages include the expenses associated with IPOs and the continual costs of maintaining a public company, which are typically separate from other operational expenses.

Moreover, fluctuations in a company's stock price can divert management's attention, as they may be incentivised and assessed based on stock performance rather than actual financial outcomes. Additionally, going public necessitates disclosing financial, accounting, tax, and other business information, potentially requiring the company to publicly reveal proprietary secrets and business practices that could benefit competitors.

What are the Challenges Involved?
Recognising the inherent risks and challenges of pre-IPO investing is essential. Indeed, there is no denying its complexity.

  • Lack of Liquidity: Pre-IPO shares may prove illiquid. This lack of liquidity indicates their potential difficulty in being sold before a company achieves an exit event or goes public.
  • High Risk: Early-stage companies bear a higher risk of failure compared to established ones. However, it's essential to note that not all pre-IPO investments guarantee positive returns.
  • Limited Information: Accessing comprehensive due diligence proves challenging due to the limited availability of information on private companies.
  • Lock-Up Periods: After the company goes public, investors may face lock-up periods; they cannot sell their shares during these specific durations.
  • Regulatory Complexity: Pre-IPO investments can involve complex legal and regulatory considerations.


Final Note

Hence, the IPO cycle symbolises a noteworthy transformation for the company as it transitions from a privately held entity to a publicly traded one. The entirety of the IPO cycle demands meticulous planning, strategic decision-making, and adherence to all regulations. It serves as a crucial mechanism through which companies aim to generate shareholder value, achieve their aspirations, and play a part in shaping the dynamic landscape of the global economy.

Frequently Asked Questions Expand All

Frequently, there is greater demand than available supply for a new IPO. Consequently, there's no assurance that all investors keen on participating in an IPO will secure shares. Interested parties may seek participation through their brokerage firms, though access to an IPO can sometimes be restricted to larger clients. Alternatively, investing through a mutual fund or another investment vehicle specialising in IPOs is another avenue.

Pre-IPO stocks present investors with a distinctive opportunity to invest in pioneering private enterprises before they enter the broader public market, frequently at more advantageous prices. This initial entry can result in substantial growth should the company's value escalate upon its public listing, transforming early backing into significant financial gains. Apart from the financial aspects, there's inherent value in participating in a company's growth trajectory, observing and backing its journey toward success from its early stages.

The company's valuation is determined with the assistance of an investment bank, and this valuation is subsequently divided by the total number of shares to be issued, resulting in the price per share.