How Indian HNIs Actually Get Into Pre-IPO US Deals: The Grey Market Nobody Writes About

There is a version of this story that gets told in financial publications: a wealthy Indian investor accessed Anthropic or Stripe before the IPO through a Singapore family office that had an allocation from a top-tier venture fund. Clean, institutional, fully compliant. And that version exists. But it is not the whole story, and it is not the version that most Indian HNIs who have actually participated in pre-IPO US deals have lived.

The more common version involves a network of intermediaries that operates in a regulatory space that is simultaneously legal in some interpretations, grey in others, and outright problematic in a few. It involves WhatsApp forwards from boutique investment firms in Dubai and Singapore.

It involves offshore SPV structures that are technically compliant with FEMA if structured correctly but are never examined closely enough to be sure. It involves pricing that is set by the intermediary rather than by any discoverable market. And it involves a settlement and custody arrangement that the investor has usually not bothered to fully read before wiring the money.

This article documents how this market actually works, from the perspective of someone who wants to understand it rather than either glorify it or dismiss it. The mechanisms, the players, the legal ambiguities, the risk of each entry point, and the questions every HNI should ask before participating. The point is not to condemn the market or to encourage it. It is to describe it accurately so that investors can make genuinely informed decisions.

The pre-IPO secondary market for US private company shares involves several categories of participants who interact in a chain, with each layer taking a spread or fee before passing the deal to the next.

The Source: Existing Shareholders Who Want Liquidity

Every secondary transaction starts with someone who already owns shares and wants to sell before the IPO. The seller may be a former employee of the target company who received stock options as compensation and has since left. It may be an early angel investor who invested when the company was a seed stage startup and now holds shares worth many multiples of the original investment.

It may be a small VC fund with a short fund life that needs to return capital to its own investors before the company lists. It may be a growth-stage VC fund that is managing its position size by selling a portion of its holding.

Each of these sellers has different motivations, different information advantages, and different price expectations. A former employee selling stock options has high information about the company (they worked there) but may be selling due to personal liquidity needs rather than conviction about the valuation.

A VC fund selling 20 percent of its position while retaining 80 percent is sending a different signal than a VC fund selling its entire position.

The identity and motivation of the seller is the most important piece of information a buyer can have, and it is almost always the piece of information that is least accessible to Indian HNI buyers at the end of the distribution chain.

The Intermediaries: Placement Agents, SPV Operators, and Boutique Brokers

Between the seller and the Indian HNI buyer sits a chain of intermediaries, typically involving two to four separate firms or individuals. The chain commonly looks like this.

A US or Singapore-based secondary market specialist identifies the seller and structures a transaction. This specialist may be a registered broker-dealer in the US (regulated by FINRA), a licensed capital markets firm in Singapore (regulated by MAS), or a boutique advisory firm that operates in a grey zone by sourcing deals through relationships rather than a formal brokerage licence.

The deal is then passed to a network of international distributors, often operating out of Dubai, Singapore, or Mumbai, who have relationships with pools of HNI capital. These distributors take a placement fee, typically 2 to 5 percent of the transaction value, for introducing the deal to investors. They may or may not be registered with any financial regulatory authority in their jurisdiction.

The Indian HNI receives the deal through a referral from a private banker, a wealth manager, a CA or investment advisor with international connections, or directly from the intermediary network. The deal is typically presented on a bespoke term sheet or information memorandum that describes the company, the shares being offered, the price, the structure, and the timeline.

The chain from seller to Indian HNI buyer in a pre-IPO secondary deal typically involves two to four intermediaries, each taking a fee. By the time the deal reaches the Indian investor, the price may have been marked up 10 to 30 percent above what the original seller received.

The SPV Operator: The Structural Centre of the Transaction

Most Indian HNI participation in pre-IPO US deals does not involve the investor directly owning shares in the company. Instead, it involves the investor owning units in a Special Purpose Vehicle (SPV), which in turn holds the shares. The SPV is typically incorporated in the Cayman Islands, British Virgin Islands, or Singapore.

The SPV structure exists for several reasons. First, it allows the intermediary to aggregate capital from multiple smaller investors into a single large block that meets the minimum transaction threshold for the seller and complies with any caps on the number of direct shareholders the target company allows.

Second, it gives the intermediary control over the investment relationship with the company: the SPV is the shareholder of record, not the individual investors. Third, it creates a legal vehicle through which the economics of the deal can be structured in ways that benefit the intermediary.

The SPV typically charges a management fee of 1 to 2 percent per annum and a carried interest of 10 to 20 percent of profits above a hurdle rate. These are in addition to the placement fees charged at the distribution layer. The investor's effective economics are the underlying company's return minus all the layers of fees, plus the currency effect.

The SPV operator also makes the key governance decisions for the underlying investment: whether to accept a merger offer, whether to tender shares in a buyback, how to vote on shareholder resolutions (if the company allows it). The individual investor's influence over these decisions, while theoretically present through their SPV unit holder rights, is in practice close to zero.

The FEMA Question: Is This Legal for Indian Residents?

This is the part of the article that most pieces on this topic elide, and it is the part that matters most for an Indian HNI considering participation.

A resident Indian who invests in an overseas SPV that holds shares of a US private company is making an overseas investment. Under FEMA, overseas direct investment (ODI) and overseas portfolio investment (OPI) by resident Indians are regulated by the RBI. The permissibility of such investment, the reporting requirements, and the documentation needed are all governed by the FEMA Overseas Investment Rules, 2022.

For a resident Indian investing in a Cayman Islands or BVI SPV that holds equity in a US private company, the applicable framework is the Overseas Direct Investment regulations if the investment involves acquisition of more than 10 percent of the SPV's equity or gives the investor control, or the Overseas Portfolio Investment regulations if the investment is a minority portfolio investment. The crucial difference is in the reporting and approval requirements.

Overseas Portfolio Investment up to USD 250,000 per year per person can be made under the Liberalised Remittance Scheme without specific RBI approval. However, the LRS route is intended for investment in listed securities and in units of regulated overseas funds, not in unlisted SPVs that hold private company shares.

The RBI's published guidance on what qualifies for LRS-funded overseas portfolio investment does not clearly include investment in BVI or Cayman SPVs holding US private company shares, which creates genuine ambiguity.

A resident Indian who wires USD 50,000 to a Cayman Islands SPV via LRS is technically making an overseas remittance under LRS, which is within the LRS limit. Whether the specific purpose (investing in a private company SPV) is a permissible LRS use is the legal ambiguity. If the investment is treated as Overseas Direct Investment requiring a different regulatory pathway and disclosures, and the investor has not followed that pathway, there is a FEMA non-compliance issue.

The result is a spectrum of positions. Some Indian HNIs have structured their participation through compliant offshore holding entities with proper ODI or OPI filings. Some have used LRS remittances under an interpretation that treats the SPV investment as a portfolio investment in a foreign fund.

Some have made investments with incomplete or no FEMA filings and are relying on the practical reality that the amounts are below the threshold that typically attracts enforcement attention. The last category represents a genuine compliance risk that could become material if the investment produces a large gain that requires repatriation, because the repatriation of a significant sum will attract scrutiny of the original investment.

Investment Structure	FEMA Framework	Compliance Risk	Practical Reality
Indian resident investing via LRS in a Cayman SPV holding US private shares	Ambiguous; LRS intended for listed securities and regulated funds	Moderate to high depending on RBI interpretation; no clear precedent for this specific structure	Common in practice; rarely challenged by RBI unless repatriation triggers scrutiny
Indian resident investing through a properly structured Singapore or Mauritius holding company with ODI filings	Compliant if properly documented; ODI route exists for this	Low if filings are complete and accurate	Less common due to higher setup cost and complexity; used by larger HNI investments
Indian resident with no FEMA filing, direct wire to offshore SPV	Non-compliant under most interpretations	High; particularly on exit when gains need to be repatriated	Unfortunately common at lower ticket sizes where intermediaries do not guide on compliance
NRI resident abroad investing from overseas account	Outside FEMA for most purposes; subject to regulations of country of residence	Low if investment made from overseas account	The cleanest route; available to NRIs who invest from their non-India accounts

The Pricing Reality: What Are You Actually Paying?

Pricing in the secondary market for private company shares is opaque by design. There is no exchange, no central quote, and no regulatory requirement to disclose transaction prices. What prices the Indian HNI buyer sees are the prices at which the intermediary is willing to sell, not the prices at which the underlying shares actually changed hands in the primary market or in arm's-length secondary transactions.

The markup chain is real and substantial. A seller may offer their shares at USD 100 per share. The primary intermediary purchases the block and marks it up to USD 115 per share. The distributor adds another layer to reach USD 125 per share.

The SPV operator adds its management fee and carry expectations into the headline number. By the time the deal reaches the Indian HNI, the effective cost per share is significantly above what any institutional buyer paid for the same company's shares in the most recent fundraising round.

This markup dynamic has produced some painful outcomes. During the 2021 technology valuation peak, many secondary transactions in Indian unicorns and US technology companies were priced at or near the companies' peak private market valuations.

When those companies eventually listed or were valued in subsequent rounds at lower prices, secondary market buyers who had paid top-of-cycle prices found themselves with immediate losses. The intermediary had already been paid its fee. The SPV operator had already charged its management fee. The Indian investor absorbed the downside alone.

The relationship between the secondary price and the most recent primary round valuation is the best available reference point, but it is imperfect. Secondary shares trade at discounts to the last primary round when liquidity demand from sellers is high, and at premiums when buyer demand for a hot company outstrips the available supply of secondary shares.

For the most widely covered companies, the spread between the bid and ask in the secondary market can be 10 to 20 percent or more, and the intermediary captures some or all of this spread.

The price an Indian HNI pays for a pre-IPO US deal is typically 10 to 30 percent above what the seller received, after all intermediary layers have taken their share. The investor often does not know this, because the seller's price is not disclosed.

The Information Problem: What You Don't Know

In a secondary market transaction for private company shares, the information available to the buyer is systematically worse than the information available to the seller, and this is true even for the most diligently prepared buyers.

Audited financial statements for private companies are not public. A company like Anthropic, Stripe, or Plaid that has not filed for an IPO has no obligation to publish its financial results.

What financial information is available comes from media reports citing unnamed sources, from investor presentations that are shared under NDA and cannot be circulated, and from the company's own voluntary disclosures in press releases and regulatory filings that may be partial or incomplete.

The IPO timeline is unknowable. Pre-IPO investors are implicitly making a bet on when the company will provide a liquidity event. If the IPO happens in 18 months, the investor's return profile looks one way.

If it happens in five years, or if the company raises multiple down rounds before listing at a lower price, or if the company remains private indefinitely (like SpaceX), the return profile looks very different. None of the intermediaries selling these deals can predict the IPO timeline reliably, and the ones who express high confidence are typically doing so to close a sale.

Cap table information, meaning the full picture of how many shares exist, what classes of shares exist, what preferences the institutional investors have, and how an exit event would distribute proceeds, is almost never fully available to secondary buyers.

A deal that looks like a 3x return at a given IPO price may actually produce much lower returns for common share holders if the institutional preferred shareholders are entitled to liquidation preferences that must be paid out first. Understanding the actual economic entitlement of the shares being purchased requires seeing the cap table and the shareholder agreement, documents that are confidential and shared, if at all, under NDA.

The Due Diligence That Actually Happens

In principle, every investor in a private company should conduct thorough due diligence. In practice, the due diligence that most Indian HNIs perform before committing to a pre-IPO secondary deal ranges from minimal to none.

The typical deal presentation involves a 10 to 20 page information memorandum prepared by the intermediary, which includes publicly available information about the company (Wikipedia-level background, press coverage, published revenue figures if any), the terms of the deal (price, structure, minimum investment, timeline), and a photograph of the company's logo and office buildings.

The IM does not include audited financial statements, cap table details, or substantive risk disclosures beyond boilerplate language that the investment is speculative and may result in total loss.

The due diligence process from the investor side often consists of a phone call with the intermediary, a Google search on the company, and perhaps a conversation with another HNI who has previously participated in deals from the same intermediary. The decision is frequently made quickly because the intermediary creates urgency: the allocation is closing in 48 hours, there are 10 other investors ready to take the slot, the window is narrow.

This is not a description of all pre-IPO secondary investing in India. There are sophisticated family offices and institutional participants who conduct genuine due diligence, engage lawyers in the relevant jurisdiction, examine cap table documents under NDA, and make investment decisions based on substantive financial analysis. But these investors are the exception, not the rule, in the Indian HNI pre-IPO market as it currently operates.

The Exit Reality: What Happens When You Want to Leave

The single most underestimated risk in pre-IPO secondary investing is liquidity risk on exit. Every investment presentation focuses on the entry: the company, the price, the upside scenario if the company lists at a certain valuation. The exit scenario, beyond the assumed IPO, is typically not modelled in any serious way.

For a company that successfully IPOs within a reasonable time horizon, the exit is straightforward: the SPV's shares are converted into listed shares on IPO, the lock-up period (typically 180 days post-IPO) expires, and the SPV liquidates its position and distributes proceeds to unit holders. The investor eventually receives cash, minus SPV carry and fees.

For a company that does not IPO on the expected timeline, the options narrow considerably. The investor can attempt to sell their SPV units in the secondary market, which is itself illiquid and may not offer a buyer at any reasonable price. The investor can wait, potentially indefinitely.

The investor can attempt to trigger a liquidation of the SPV, which requires SPV governing documents that permit this and majority unit holder agreement. In practice, secondary market investors in private company SPVs often find that their exit options, if the IPO does not materialise, are limited to nothing or near-nothing for an extended period.

The post-IPO lock-up is also an underappreciated risk. A company may IPO at a valuation that produces a paper gain at the IPO date, but the 180-day lock-up prevents the SPV from selling immediately. If the company's stock declines significantly during the lock-up period, which happens frequently to high-profile technology IPOs in the weeks and months after listing, the investor's actual realised return is significantly lower than the peak paper gain on IPO day.

The 2021 and 2022 IPO cohort produced numerous examples of companies that listed at significant premiums to their pre-IPO valuation and then declined sharply during and after the lock-up period.

Exit Scenario	Realistic Timeline	Investor's Options	Risk Level
Company IPOs as expected within 2 years	2 to 3 years from investment to cash	Wait for lock-up expiry; SPV liquidates and distributes	Moderate; IPO price and lock-up period declines are the primary risks
Company IPOs but significantly later than expected (3 to 5 years)	5 to 7 years from investment to cash	Wait; no secondary market exit available during this period	High; extended illiquidity; valuations may have changed significantly
Company raises another round at a lower valuation (down round)	Indefinite; next exit event unknown	SPV may dilute; investor holds at a paper loss; no exit until a future event	High; down round dilutes existing shareholders; SPV economics worsen
Company does not IPO (stays private indefinitely)	Indefinite	Secondary SPV market if any buyers exist; wait for an M&A event; accept the investment may never liquidate	Very high; investment may be permanently illiquid
Company fails	Total loss	SPV winds down with no recovery after preferred shareholders are paid	Maximum; total loss of principal

The Tax Reality When You Eventually Exit

For Indian HNIs who participate in pre-IPO US deals and eventually receive a return, the Indian tax treatment of those gains is frequently a surprise, because it does not follow the equity fund taxation that many investors are familiar with.

Gains from an investment in an overseas SPV holding foreign company shares are treated as foreign equity capital gains under Indian tax law. They are not eligible for the concessional 12.5 percent LTCG rate that applies to Indian listed equity or the 20 percent with indexation rate that applied to older debt funds. Instead, the gains are taxed at the investor's applicable income tax slab rate, as income from capital gains on foreign assets.

This means a 30 percent bracket investor who earns a 5x return on a pre-IPO investment over five years pays approximately 30 percent tax on the entire gain, not 12.5 percent or 20 percent. On a Rs 50 lakh investment that grows to Rs 2.5 crore, the gain of Rs 2 crore is taxed at 30 percent: Rs 60 lakh in Indian income tax. Additionally, the investor may face tax in the jurisdiction where the SPV is domiciled (though Cayman and BVI structures are typically zero-tax), and potentially in the US if the investment creates a US tax nexus.

If the original investment was made through LRS and the compliance was not perfect, the repatriation of the exit proceeds also creates RBI and FEMA reporting obligations that were not addressed at the time of the original investment. A large inward remittance from an overseas SPV liquidation will be examined by the authorised dealer bank, which will ask for the documentation trail back to the original investment. If that trail is incomplete, the repatriation itself becomes a compliance issue.

The prudent approach for any Indian HNI who has made or is considering a pre-IPO investment is to engage a chartered accountant with expertise in FEMA and cross-border taxation before the investment, not after the exit. The tax and compliance planning done upfront determines whether the exit is clean or complicated.

Red Flags That Experienced Investors Watch For

Over time, patterns emerge that distinguish pre-IPO deals that are more likely to be genuinely structured from those that are likely to produce poor outcomes. The following are specific warning signals that experienced participants in this market have identified.

• The intermediary is unable or unwilling to disclose who the seller is: If the seller's identity cannot be shared even in general terms (former employee vs VC fund vs the company itself), the lack of transparency is a problem. The seller's identity and motivation are the most important piece of information in a secondary transaction.

• The deal has no law firm of repute involved: Genuine secondary transactions involving meaningful amounts are accompanied by legal work from recognised firms. If the documentation consists only of a term sheet and an information memorandum with no legal opinion letter and no identified counsel for the SPV, the structural integrity of the deal is uncertain.

• The information memorandum contains no financial information: A document that describes the company's products, history, and competitive positioning but provides no revenue data, no funding history with valuations, and no discussion of the company's financial health is marketing material, not an investment document.

• The pricing is not referenced to any independent valuation benchmark: If the intermediary cannot explain how the offered price relates to the most recent primary round valuation, the secondary market comparables, or any other objective reference point, the pricing is arbitrary.

• The urgency is artificial: Genuine secondary transactions have natural timelines. If the deal is presented as closing in 24 or 48 hours with no possibility of extension, the urgency is a sales technique. A transaction involving USD 50,000 or more deserves more than 48 hours of consideration.

• The SPV documentation is not provided before commitment: The SPV operating agreement, subscription documents, and fee schedule should be reviewed by the investor's counsel before any money is wired. If the documentation is provided only after payment, the investor has no ability to negotiate terms or walk away.

• The custody arrangement is not clear: Where will the actual shares be held? In the SPV's brokerage account at which firm? How are they accessed in the event of a dispute with the SPV operator? If these questions do not have clear answers, the investment's legal title chain is uncertain.

What the Well-Structured Deals Actually Look Like

Not every pre-IPO US secondary deal accessed by Indian HNIs is poorly structured. The better-structured deals, which typically involve larger amounts and more sophisticated investors, have several distinguishing features that separate them from the grey market transactions described above.

A properly structured pre-IPO secondary investment accessible to a large Indian family office might involve the family office's Singapore or Mauritius holding entity subscribing directly to an SPV established by a licensed Singapore capital markets firm, with legal documentation prepared by a recognised international law firm, cap table information provided under NDA, financial statements for the target company reviewed by the family office's own investment team, and FEMA filings made on the ODI route to cover the outward investment from the offshore holding entity.

The fee structure is disclosed completely: the placement fee, the SPV management fee, the carry, and any other charges. The custody arrangement specifies the depository and the account in which the underlying shares are held. The investor's legal rights in the SPV, including rights to information, rights on exit, and rights in the event of a dispute, are set out in the subscription documents that have been reviewed by the investor's own counsel.

The difference between this structure and the WhatsApp-forward deal with a 48-hour window is not a difference of degree. It is a difference of kind. The well-structured deal is a genuine investment with understood economics and known risks. The WhatsApp deal is a speculative bet on a black box, with unknown pricing, unknown seller, unknown custody, and material compliance uncertainty.

The pre-IPO secondary market for US private company shares, as accessed by most Indian HNIs, systematically benefits the intermediaries who structure and distribute the deals, and exposes the end investors to risks and costs that are rarely fully disclosed at the point of sale.

The intermediaries benefit because they earn fees regardless of the investment outcome: placement fees at sale, management fees during the holding period, and carry on exit if the investment succeeds. Their revenue is not aligned with investor returns in the way that a fund manager's revenue in a well-designed fund structure would be, because the flat fees are earned whether or not the investor profits.

The investors who benefit are those who have the sophistication, the legal support, and the relationship access to participate in genuinely structured deals at early-stage valuations. These are the investors who are already part of the institutional private market ecosystem, the large family offices with Singapore holding entities, proper legal counsel, and access to top-tier placement agents. For these investors, pre-IPO secondary investing can add meaningful returns to a portfolio that can absorb the illiquidity.

The investors who are most exposed to poor outcomes are those who participate through the grey market chain described in this article: investing based on an information memorandum, at prices that reflect multiple layers of markup, through SPVs with uncertain governance and custody, without proper FEMA compliance, without legal counsel, and without a clear understanding of the exit mechanics. These investors have taken on meaningful risk for uncertain reward, and they have often paid fees that significantly erode the upside even in positive outcomes.

The pre-IPO secondary market in India is not a democratised access mechanism for high-quality deals. It is a distribution network for deals that were passed over by institutional buyers, at prices that reflect several layers of intermediary markup, sold to investors with the least information.

Disclaimer: This article is for educational purposes only and does not constitute financial, legal, or investment advice. The FEMA and RBI framework for overseas investments by resident Indians is subject to official interpretations and circulars that may differ from the analysis presented here. Any person considering overseas investments should obtain specific legal advice from a qualified FEMA practitioner before making any investment or remittance. Tax rates and compliance requirements are subject to change. This article describes practices that occur in the market; it does not endorse, recommend, or encourage any specific investment activity or structure.