Pre-IPO Bonds: Overview of the Instrument and Comparison with Traditional Pre-IPO Financing Mechanisms

April 21, 2026

Tags:#Publications

Since the beginning of 2025, the market has seen a trend toward hybrid financing instruments (quasi-equity / quasi-debt) due to investors’ shift in focus from the equity market to fixed-income instruments.

Thus, in a number of recent pre-IPO placements, as well as in the IPO of PAO GLORAX, the transaction structure included a capital protection mechanism for investors — an irrevocable offer to repurchase shares / a put option from the majority shareholders in favor of the share purchasers, which brought such equity financing instruments closer to debt instruments.

A few more issuers tested the effectiveness of convertible bonds as a financing instrument over the past year.

In this article, we will discuss pre-IPO bonds — an instrument that, in our view, is a high-quality alternative to traditional pre-IPO financing methods due to the flexibility of its terms, the absence of procedural barriers inherent in balance-sheet convertible bonds, and other advantages.

Instrument Overview

Both under Russian and foreign law, pre-IPO bonds are issued through an SPV — this choice is driven by the necessary contractual framework.

Both already issued and future shares of the target company may be used for the pre-IPO bond issuance.

The issuance terms set out the criteria for a “liquid” IPO (multiples and offering size) in order to protect investors against the future sale of an illiquid security.

Advantages of the Instrument

For the target company:

deferral of the valuation issue to a later stage;
avoidance of the conversion difficulties inherent in balance-sheet convertible bonds;
avoidance of dilution of corporate control after the placement (no minority shareholders appear in the target company until it is ready to go public);
transparent consequences for the target company if it decides not to proceed with an IPO: the instrument remains debt and is repaid on an accelerated basis;
the ability to secure a lock-up: “conversion” may take place six months after the IPO, which does not put pressure on the share price.

For investors:

•100% capital protection and up to 100% allocation in a future “liquid” IPO.

Comparison with pre-IPO on platforms

Pool of potential purchasers

Unlike the placement of shares at the pre-IPO stage, the placement of pre-IPO bonds makes it possible to attract demand from an audience oriented toward the debt market.

Consequences of implementing the transaction for the target company

After a pre-IPO round on platforms is completed, corporate control is redistributed and a large number of minority shareholders appear in the company. After the placement of pre-IPO bonds is completed, there is no redistribution of control. Investors acquire shares only at the IPO stage, which simplifies the implementation of corporate procedures by the target company in preparation for the transaction.

Comparison with pre-IPO through a Closed-End Investment Fund

The creation of a Closed-End Investment Fund, unlike the implementation of the pre-IPO bond mechanism, is complicated by regulated administrative procedures and significant infrastructure costs. This makes pre-IPO through a Closed-End Investment Fund burdensome for companies planning to establish a fund whose assets will consist solely of shares in that company.

Foreign Practice of Implementing the Mechanism

Palantir Technologies is a U.S. IT company specializing in data mining.

Given that its business is associated with various types of confidential information, the company developed outside public markets from the early 2000s until 2020, financing its operations through private rounds, including through pre-IPO bond issuances.

Thus, in 2019, Palantir Technologies bonds were offered on the Russian market with the following parameters:

underlying asset: a loan in favor of a foreign holding company;
the transaction terms provided for both an assessment of the company’s current value and a preliminary valuation on the basis of which the company would decide whether to go public within a three-year horizon;
under the loan terms, the borrower was entitled to repay the loan with shares upon an IPO on the agreed platform, and if the company refused to list, it was required to compensate investors for the market return they had not received.

In 2020, the company went public through a direct listing. For investors who had invested at the private stage, the increase following the direct listing averaged 35%.

_________________
A more detailed description and the parameters of pre-IPO bonds are available upon request sent to our email address – lecap@lecap.ru.