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    Question

    They are high-profile institutional investors that are

    allotted shares before the subscription opens for retail and other investors, and have to commit to holding their shares for a certain period after listing. These investors also aid in price discovery of the IPO and get guaranteed allotment a day before the IPO opens to the public are normally allocated 60% of the QIB quota. Which of the following investors are referred to in the above lines?
    A Angel investors Correct Answer Incorrect Answer
    B Peer-to-peer lenders Correct Answer Incorrect Answer
    C Venture capitalists Correct Answer Incorrect Answer
    D Anchor investors Correct Answer Incorrect Answer

    Solution

    ● Option A is incorrect: An angel investor is an individual who provides capital for a business (usually at the initial moments and when most investors are prepared to back them) or businesses start-up, usually in exchange for convertible debt or ownership equity. Often, angel investors are found among an entrepreneur's family and friends. ● Option B is incorrect: Peer-to-peer (P2P) lending is a form of lending that allows people to lend or borrow money from one another by connecting borrowers directly to investors without going through a bank or financial institution and other middleman. ● Option C is incorrect: Start-up companies with a potential to grow need a certain amount of investment. Wealthy investors like to invest their capital in such businesses with a long-term growth perspective. This capital is known as venture capital and the investors are called venture capitalists. Such investments are risky as they are illiquid, but are capable of giving impressive returns if invested in the right venture. The returns to the venture capitalists depend upon the growth of the company. VCs also have the power to influence major decisions of the companies they are investing in as it is their money at stake. ● Option D is correct: Anchor investors are highprofile institutional investors that are allotted shares before the subscription opens for retail and other investors, and have to commit to holding their shares for a certain period after listing. An anchor investor in an IPO is a qualified institutional buyer (QIB) like a foreign portfolio investor or mutual fund or insurance company which invests before the IPO is made available to public as per SEBI regulations. As initial investors, they make the IPO process more attractive for investors, and instil confidence in them. Anchor investors also aid in price discovery of the IPO. Anchor investors who get guaranteed allotment a day before the IPO opens to the public are normally allocated 60% of the QIB quota. Companies with a profitable track record can allocate 50% of the IPO to QIBs. Demand in the anchor category is an indication of the success of the IPO.

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