How to Read an IPO: OFS, Fresh Issue, and the Valuation Question

TL;DR

• OFS ≠ red flag. It’s how VCs and founders exit after 8–10 years of holding and that exit is what keeps the next generation of startups funded.
• The data backs it: OFS has made up 48–87% of Indian IPO fundraising every year since 2012. This isn’t an aberration, it’s the norm.
• The exit retail investors actually miss: institutions are pulling back OFS at IPO and cashing out via post-listing block deals instead of nearly 3x the value since 2024.
• High OFS can even be a good sign it can mean the company doesn’t need your money to grow. The real question is never who’s selling. It’s the valuation they’re selling at.

Every time a high-profile IPO drops its DRHP, the same conversation plays out in Indian investing communities. Someone spots a large OFS component, and the verdict arrives quickly: “Promoters are dumping. Avoid.”

It’s one of the most widespread beliefs in Indian retail investing. And it’s worth examining more closely

If nobody can exit, nobody will invest. That is the thesis of this article. OFS is not a warning, it is the mechanism that keeps the startup funding cycle alive. The question worth asking isn’t whether someone is selling it’s what they’re charging you for the privilege.

What OFS Actually Is

OFS, or Offer for Sale, is a mechanism where existing shareholders, founders, early VCs, PE funds sell a portion of their stake to the public through the stock exchange. Unlike a fresh issue, where the company raises new capital for growth, an OFS transfers ownership of existing shares. The company gets no money. The selling shareholder does.

That’s where the retail instinct kicks in: “They know something we don’t.”

Sometimes, that’s true. But most of the time, they’re doing exactly what they were always supposed to do.

“An IPO is not just a fundraising event, it’s the final chapter of a VC investment.”

Walk Through One Investment

Here is how a typical startup funding story ends.

A VC fund invests in a startup in 2018. It takes years of capital, patience, and multiple funding rounds. By 2026, the company is mature enough to list. The fund is now in year 8 of a 10-year lifecycle. Its limited partners, pension funds, family offices, institutions have been waiting almost a decade for returns. The fund must start returning capital.

So when this VC sells shares in the IPO, retail investors call it a red flag. But ask the obvious question: if not at IPO, then when?

The IPO OFS is not panic selling. It is a decade of patient capital finally reaching its scheduled liquidity event. And if that exit is consistently punished by the market, the math for the next fund changes. Early-stage bets get smaller. Risk appetite shrinks. International VCs stay away. The pipeline of funded startups and the companies that become the IPOs of 2030 gets thinner.

“Every IPO exit funds the next startup.”
The data confirms this isn’t an edge case. Since 2012, OFS has made up more than half of all IPO fundraising in India in most years, peaking at 87% and sitting at 48% as recently as 2026. It is not an aberration. It is the structural norm of how Indian capital markets work.

Source: Mint Newspaper 25th June 2026 pg 04

The Exit Retail Investors Don’t Notice

Here is a counterintuitive finding that reframes the entire OFS conversation.

While retail investors worry about OFS at IPO, sophisticated institutional money has been quietly moving in the opposite direction deliberately reducing OFS at IPO and exiting via post-listing block deals instead. Since 2024, OFS exits of about ₹59,000 crore were just one-third of the value realised through post-listing bulk and block deal exits.

In 2021, IPOs accounted for 12% of overall PE exits, with block trades at 23%. By 2025, IPO exits had shrunk to 8%, while block trades rose to 30%.

Institutions are holding back stakes at IPO, waiting for price discovery to mature, and exiting in the open market after listing. They are increasing their exit pressure just invisibly, after the retail investor has already bought in.

The exit that often concerns retail investors at IPO can, in practice, be far larger and far less visible in the months that follow.

“OFS isn’t a red flag. Irrational valuation is.”

High OFS Can Actually Be a Positive Signal

This is the nuance most commentary misses entirely.

A company that doesn’t need fresh capital to grow doesn’t have to raise a fresh issue. If it’s profitable, cash-generative, and self-funding, it may come to market purely through OFS letting early investors exit while giving public investors access to an already-mature business.

In this case, a high OFS percentage may not be evidence of insiders fleeing . It’s a signal that the business has graduated beyond needing your money. It can stand on its own. The IPO is a liquidity event, not a rescue operation.

The NSE’s own proposed IPO, a purely OFS structure is one illustration of this.. The exchange isn’t raising growth capital. It simply has no need to. Its existing shareholders are offering the public a piece of a profitable, dominant business.Whether the valuation justifies that access is, as always, the more important question

The Framework That Actually Matters

Here is a simple way to read any IPO:

Fresh issue tells you where the money goes into the business, for growth, expansion, or debt repayment. OFS tells you who gets paid which existing shareholders are taking liquidity, and how much of their stake they’re selling. Valuation tells you how the market is pricing the business and that is the question that most directly drives returns.

Retail investors spend most of their attention on the second column. Professional investors spend almost all of theirs on the third.

There is a meaningful difference between a VC selling 15% of a profitable company at 30x earnings after an 8-year hold, and a promoter selling 60% of a loss-making company at 120x revenue six months after the last private round. The OFS percentage looks large in both cases. The investment case is completely different.

“OFS isn’t the variable. Valuation is.”

Signals Worth Watching

Some of the factors that experienced market observers tend to examine more closely: Valuation multiples relative to underlying fundamentals. The proportion of a promoter’s total personal holding being offered, not just a fund lifecycle exit. The presence or absence of fresh capital being raised alongside OFS in a loss-making business with no near-term path to profitability. The trajectory of unit economics across successive funding rounds.

These are the variables that tend to attract the most scrutiny. The OFS component, in isolation, rarely tells the full story.

Chief Brand & Investor Relations Officer

Sneha Dadrwal

Frequently Asked Questions

Q: What is OFS in an IPO, and is it bad for retail investors?

A: OFS (Offer for Sale) means existing shareholders sell their shares to the public the company receives no proceeds. It is not inherently bad. OFS is a necessary mechanism for early investors to exit after years of holding. The concern should be valuation: whether shares are priced fairly relative to the business's fundamentals.

Q: Why do VCs and promoters sell shares in an IPO?

A: VC funds run on a defined 8–10 year lifecycle. By IPO stage, early investors are often near the end of their fund life and must return capital to their limited partners. Blocking that exit via IPO OFS would make early-stage investing economically unviable and starve the startup ecosystem of the capital it needs to fund the next generation of companies.

Q: Can a high OFS percentage be a positive signal?

A: Yes. Profitable, cash-generative companies that don't need fresh capital may list entirely through OFS. A high OFS can mean the business has matured and is self-funding, not that insiders are fleeing. The question is always whether the valuation at which they're selling is justifiable.

Q: If institutional investors are reducing OFS, where are they exiting?

A: Since 2024, post-listing bulk and block deals have generated roughly three times the exit value of IPO OFS. Institutions are increasingly holding stakes through IPO and selling in the open market after listing when lock-ins expire and price discovery has matured. The real institutional exit pressure often arrives months after the IPO, not on day one.

Q: What should retail investors focus on instead of OFS percentage?

A: Focus on: the valuation multiple relative to earnings or revenue, whether the company is profitable or on a credible path, who is selling and what fraction of their total holding, and whether fresh capital raised will be deployed into genuine growth or debt repayment.

Sources

1. Mint
2. Mint
3. Prime Database