Private Markets Explained: How Early Investors Multiplied Their Money

Before a company becomes a publicly traded stock, it may already have attracted investors in the private market. While most retail investors track the Sensex, Nifty, quarterly earnings and mutual fund flows, private-market investors often try to identify businesses before they reach the stock exchanges. These investments can offer significant returns when companies grow rapidly, but they also involve greater risks, limited liquidity and less public information.

Navy Vijay Ramavat, Managing Director of Indira Securities, said private markets have traditionally attracted investors with substantial capital, higher risk tolerance and the experience to identify businesses at an early stage. The attraction is straightforward: by the time a company lists, a significant portion of its value creation may already have taken place. Early investors who enter at lower valuations can potentially benefit substantially if the business continues to expand.

Waaree Energies provides an example of how early private-market investments can generate large gains. Quest Portfolio Services Pvt. Ltd. invested in the company in September 2022 at an implied valuation of around Rs 4,661 crore. Madhuri Madhusudan Kela invested in June 2023 at a valuation of approximately Rs 13,832 crore, while Value Quest Scale Fund entered a month later at around Rs 14,325 crore. When Waaree Energies listed on October 28, 2024, its IPO issue price valued the company at roughly Rs 43,179 crore.

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Based on those valuations, Quest's investment represented an approximately nine-fold increase in implied value in about two years. Kela and Value Quest, which entered much later, saw their investments roughly triple by the time of the listing. However, such outcomes are exceptional rather than guaranteed. Private companies can fail to scale, lose funding, face slowing growth or struggle to establish sustainable business models, potentially leaving investors with substantial losses.

Another advantage of private markets is the ability to deploy large amounts of capital through negotiated transactions. Buying or selling hundreds of crores worth of a listed stock can affect its market price, particularly when liquidity is limited. In private transactions, institutional investors can negotiate directly with companies or existing shareholders to acquire sizeable stakes at an agreed valuation. However, this flexibility comes with a major drawback: private investments can remain locked in for years, with no readily available market for selling the holding.

Private markets therefore offer a fundamentally different proposition from listed equities. Public markets provide greater transparency, liquidity and easier entry and exit, while private markets provide earlier access to businesses with potentially significant growth prospects. The possibility of extraordinary returns can be attractive, but investors must also be prepared for higher uncertainty, limited disclosures and difficult exits. Ultimately, entering a company before it becomes widely known can create substantial wealth only when the underlying business succeeds.

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