63% of Your IPO Money Isn’t Helping Companies — It’s Filling Promoters’ Pockets!

Is Your IPO Money Really Helping Companies or Just Filling Promoters’ Pockets?

If you think an IPO is a company raising fresh money to grow, think again. In 2025, a whopping 63% of the money raised in IPOs in India didn't help the companies at all. Instead, it went straight to promoters and private equity investors who wanted to cash out. This means when you buy shares in many IPOs, you’re often just buying from insiders wanting to exit, not funding new projects or expansions.

Fresh Issue vs Offer for Sale: What You Need to Know

An IPO usually involves two parts:

• Fresh Issue: New shares sold by the company itself. This money goes into the company’s coffers to expand operations, pay debts, or build facilities.

• Offer for Sale (OFS): Existing shareholders like founders or early investors sell their shares to the public. This money goes directly to these insiders, not the company.

In 2025, most of the IPO money (63%) was OFS. That’s a red flag for investors hoping their money will help the company grow.

Real IPO Examples: When Your Money Doesn’t Help

Take LG Electronics India — it raised ₹11,607 crore in 2025, but none of that money went to the company. The Korean parent simply sold its stake to Indian investors. WeWork India raised ₹3,000 crore entirely through OFS, a pure exit for insiders.

Even big names like Tata Capital and Lenskart had over half their IPO money coming from OFS, meaning the fresh money reaching those companies was very limited.

Financial Engineering: Making Companies Look Better Than They Are

For insiders to get a high price when selling shares, companies need to appear extremely profitable and growing fast before the IPO. To do this, some “dress up” their financials with clever accounting tricks—often called financial engineering.

Look at Urban Company: they reported a big profit of ₹240 crore the year before IPO after years of losses. But most of that profit came from a one-time tax credit, not real business earnings. After listing, losses returned, and the stock price dropped.

Mamaearth showed a similar pattern — profits before IPO, losses after. DroneAcharya went even further: SEBI found that over a third of their revenue was fake, coming from shell companies. Without those fake sales, they would have reported losses instead of profits.

Why Do Retail Investors Still Get Trapped?

Despite all this, many retail investors fall for the hype around IPOs due to strong marketing. Brokerages, news channels, influencers, and rating agencies often work in a web that promotes these IPOs aggressively, making them look like unmissable opportunities.

Even founders or key company promoters sometimes use popular influencers to pump excitement before the IPO, ensuring high valuations they can exit at.

What Can Be Done To Protect Investors?

• Greater transparency: Companies must disclose how much money is actually going to fund growth and how much is for insiders to exit.

• Stricter SEBI oversight: Regular checks to catch financial engineering and fake revenues before IPOs.

• Educating retail investors: Awareness programs so everyday investors understand the difference between real growth and accounting tricks.

• Regulating hype: Cracking down on paid promotions and undisclosed conflicts of interest among brokers and influencers.

• Encouraging genuine fresh issues: Incentivizing companies to raise capital primarily for growth, not pure exits.

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This pattern of IPOs mainly benefiting promoters, along with financial manipulation, highlights the need for retail investors to be cautious. Always look beyond the glossy marketing and dig into whether the company really stands to benefit from your investment.

Thanks to Aakanksha