5 Exciting 'Unlisted' Companies and How to Play Them

Indian start-ups have seen an unprecedented flow of capital in the year 2021.

They have raised approximately US$26 bn in the first eight months of 2021. This is about twice the amount raised in 2017 (US$13.2 bn), which was the highest to date.

However, as these businesses grow, the upside is limited to only a few investors. Why?

Because they are unlisted.

Shares of these companies are available to only those investors that have the deep pockets to bet big on them during the early stages of growth.

So, how do you get to be a part of their growth story?

One of the safest ways is by investing in companies that have a stake in these start-ups.

That way, you can limit your downside while still profiting from capital appreciation in these companies due to their investments the start-ups.

So which startups do some of the listed companies have stakes in?

Here are five...

#1 Policybazaar

Policybazaar is one of India's largest insurance marketplaces.

The company has a 93% market share of India's online insurance aggregation business. Over 65% of the policies sold online are through its platform.

As of March 2021, PolicyBazaar had 48 m registered users, with total purchases exceeding 19 m policies from insurer partners.

The company recently filed its papers with the market regulator to raise approximately Rs 60 bn through an initial public offering (IPO).

It had last raised US$75 m in funding which led to the expansion of its services in UAE and West Asia.

PolicyBazaar plans to raise Rs 37.5 bn in a fresh issue and the remaining Rs 22.7 bn through an offer for sale (OFS).

With the help of the proceeds, it aims to set up a physical network, including claims assistance and a point-of-sale network.

It recently surrendered its web aggregator licence and acquired an insurance broking licence from the insurance regulator, the Insurance Regulatory and Development Authority of India (IRDAI).

If you would like to invest in the company, you could consider investing in InfoEdge.

InfoEdge holds a 14% stake in PolicyBazaar.

In 2008, it had invested Rs 300 m in the startup as seed funding. Later in 2011, it invested Rs 600 m as part of the venture capital round. In total, the company has invested Rs 5.8 bn.

#2 SUN Mobility

SUN Mobility is one of the leading providers of energy infrastructure and services for electric vehicle usage.

The company's vision is to create a universal network of interoperable energy infrastructure to accelerate the mass adoption of electric vehicles.

To do this, it has collaborated with vehicle manufacturers, battery cell technology providers, fleet operators/aggregators, and oil marketing companies.

Some of its partners include Tata Power, Ashok Leyland, and Uber.

In August 2021, Sun Mobility launched its Mobility as a Service (MaaS) business, on the back of its battery swapping technology. The service provides customers with an all-in-one solution that allows them to swap unlimited batteries for the duration of the contract.

It recently partnered with Zypp Electric, a leading EV logistics company, for the same. The partnership aims to place 10,000 EVs across various platforms over the next few years.

Zypp will benefit from SUN's state-of-the-art electric mobility solutions and access to its wide network of swap points.

If you're interested in being a part of the SUN Mobility's growth story, you could invest in Bosch.

Auto component major, Bosch has a 26% stake in SUN Mobility. It bought the stake through its investment vehicle Robert Bosch Investment Nederland B.V. in September 2020.

#3 Ather Energy

Ather Energy is an Indian electric vehicle (EV) company that manufactures electric scooters. It also has an established electric vehicle charging infrastructure across the country called the Ather Grid.

Ather Energy recently unveiled its all-new electric vehicle manufacturing plant at Hosur in Tamil Nadu, spread across 123,000 square feet.

With a capacity to produce 110,000 scooters annually, the facility will serve as Ather Energy's national manufacturing hub. The factory is supported by the government of Tamil Nadu under its EV Policy.

Apart from manufacturing EVs, the facility will also focus on lithium-ion battery manufacturing which is a key area of focus for Ather Energy going ahead.

The facility has the capacity to produce 120,000 battery packs annually.

Ather Energy is the only EV OEM in India to make its own battery packs and has filed 13 patents on the design and manufacturing of the batteries.

It's also a great play if you want to ride the EV megatrend. Since it is unlisted, you can invest in Hero MotoCorp instead.

The company has a 34.6% stake in the Ather Energy.

It has been a part of Ather's growth story since 2016 when it first invested as a part of its Series B funding round.

At the time, the company's shareholding in the startup was 31.3%. Later in July 2020, it invested Rs 840 m in the company which increased its stake to 34.6%.

#4 Smallcase

Smallcase is a fintech company that allows you to invest in model portfolios of stocks or exchange-traded funds (ETFs) based on a theme or a strategy.

The company's platform is integrated with India's largest brokers, to offer 'smallcases' to their clients.

A 'smallcase' is a basket of stocks that reflects an idea. So, a dividend-yield smallcase may be made up of high-dividend paying stocks while a PSU smallcase may consist of profitable PSU stocks.

The startup offers an in-house team of licensed professionals who offer more than 100 portfolios of stocks and exchange-traded funds (ETFs).

It also provides its users access to independent investment managers, brokerages, and wealth platforms.

When smallcase began operations in 2015, it took the retail investment space in India by storm.

Investors flocked to the service for their intuitive and idea-based stock bundling options. The company has only grown in popularity since then and now finds itself at the top of the market.

In December 2020, HDFC Bank invested an undisclosed amount in the investment startup as a part of its US$14 m Series B funding round.

If you would like to ride the fintech megatrend, you can buy shares of the bank instead.

#5 Waybeo

Waybeo is a technology startup that focuses on AI-based analytics for cloud telephony.

What is cloud telephony?

It's a phone system that runs through your internet connection. It's also known as a VoIP (Voice over Internet Protocol) based solution. It helps you move your business phone service to the cloud.

Leads for online businesses are usually lost due to delays in connecting with potential customers. There is also no analytics, automation, or means to optimise the customer experience.

Waybeo makes these communications hassle-free.

The public cloud services market in India is likely to reach US$7.1 bn by 2024, according to IDC estimates.

Of this, the cloud telephony market will see rapid growth as businesses move processes to cloud-based platforms.

This leaves a huge runway for growth for startups such as Waybeo.

If you would like to be a part of Waybeo's growth, you could consider buying shares of Bharti Airtel.

In September 2020, Bharti Airtel picked up a 10% 'strategic' stake in the Kerala-based tech startup as part of its startup accelerator program.

As per the agreement, Waybeo's solutions will get a larger distribution reach while Airtel will have access to Waybeo's proven as well as emerging technologies.

Why do companies invest in startups?

Investing in startups helps companies find solutions for challenging problems and gives them access to new technologies.

There's also an enormous multiplier effect with respect to investing in a startup. This big return potential is the result of the incredible amount of risk inherent in new companies.

Not only will 90% of investments fail, but there is a host of unique risk factors that must be addressed when considering a new investment in a startup.

The ones that do make it, however, can produce very high returns on investment.

If you go down the above-mentioned route, you too can benefit from this. But as with any other investment, make sure you do your due diligence on the listed companies.

Check the valuation as well as the financial track record. And if you are looking to ride a particular trend make sure the company has a significant stake in the startup.

Happy Investing!

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