In the climate-controlled environment of Rally Rd.’s garage, stands a 1988 Ferrari Testarossa. The metallic prune car is an auto enthusiast’s dream. It has clocked in original 4400 miles and is fitted with a single high mirror on the driver’s side, known as the “flying mirror,” later removed in newer models. From the original value of $98,000, it has now risen to $1,65,000.
What if you could own a piece of this classic car for less than $100?
That’s exactly what Rally Rd.’s investment app allows you to do. But, even then, you can’t drive it off Rally Rd.’s headquarters.
The NYC-based startup’s investment platform is unlike the ones we are used to. There are no traditional assets and there’s no blockchain or cryptocurrency. Yet its idea shines as bright as its fleet of collectible cars.
Like the startup Masterworks does with paintings, this app-first business sells shares in a variety of vehicles and enables people, not just those with deep pockets, to enter the prestigious collector or classic car hobby market. A share for the 1988 Ferrari Testarossa, for example, is going around for $84.
The startup was founded by Christopher Bruno, Max Niderste-Ostholt and Rob Petrozoo, in 2016. In late 2017, they launched their iOS app and in January this year, they raised a $2.9 million seed funding led by Columbus Nova.
But, really, what is so visionary about it?
First, Rally Rd.’s team of experts identify an investment opportunity. They handpick classic cars which are rare, investment grade, and those that the company believes are appropriately priced and will increase in value over time. Then the company “securitizes” the car which means it turns it into a ‘mini company’ and offers equity shares starting at around $50 to potential investors. So when you buy a share, you invest in an ownership stake in a mini-company that owns and operates that specific car.
Investors (over 18 years of age with KYC-verified U.S. Social Security number) can log on to the Rally Rd. app where classic cars are featured with a description of their provenance, ownership history, photos and videos, and also market price to compare them with other assets. Pictures, here, tell the complete story as you check “filing statements and proof of authenticity for each vehicle”. Once satisfied, you can link your bank account, fill out other investor details, and own a piece of a luxury car.
Fairly easy. But how do investors make returns?
Simply, by buying and selling car shares. Like trading at a public stock exchange, investors can use Rally Rd.’s trading market. Here, during a trading window scheduled once every month for each car, existing investors can put their shares up for sale by placing an ASK order, or a BID order to acquire more shares. And then, when the trading ends, the “broker-dealer matches up as many orders as possible to determine the market-clearing price”. And if you earn more than you’ve spent, you can get paid dividends. Rally Rd.’s securities are only offered through a FINRA registered broker-dealer in 32 U.S. states who can confirm investor identities, issue shares, and oversee all transactions.
The app is free to use and the company, too, does not charge any commissions or management fees, but it does make money as the underwriter of each initial transaction. CEO Bruno says “Rally Rd. owns 2%-10% of each car offered to align incentives with our investors.”
While shares for classic cars on Rally Rd. are always for sale, the company decides when to sell a car. As such, it intends to hold its assets long-term so if you don’t want to wait till the company liquidates your car, your best bet is the monthly trading window.
The Haves and the Have-nots
According to the Knight Frank Luxury Investment Index (KFLII) 2017,classis, luxury cars have seen a 9% annual growth and a 457% growth in the past 10 years. The rich have always had uninterrupted access but as you plummet lower in the class hierarchy, you see the invisible walls of the market, much less Adam Smith’s invisible hand.
Recently, a Ferrari 1957 335 Sport became the most expensive car to be sold by Artcurial in Paris for €32m. If that car was up on Rally Rd.’s app, all the shareholders would have enjoyed a meaty dividend.
But at the same time, wine overtook cars to top the KFLII last year, and even though the startup claims that this asset class has historically outperformed the stock market as well as other alternative asset classes (including gold, fine art, and real estate), it’s no golden nest. While the startup may not lock you on into a specific holding period, there’s no guarantee that there will be a buyer offering your desired price when you want to sell. There’s also the extremely worrisome risk of vehicle damage with a real asset like a car.
Classic car lovers aside, the app is also aimed at millennials who find it easier to invest through handheld devices and those who want to diversify their portfolios. And the affordable cost of shares means that it could also prove to be a good platform to learn about investing.
However, some territorial car lovers have lamented how Rally Rd could artificially inflate the collector car market. They’ve also complained about how a collector – or any investor – would want to interact with the car, to be able to touch and feel it, and it’s hence that the NY-based company plans to launch activities where investors can visit the collection, participate in unique driving experiences, and even see their cars in a 24-hour live video feed.
And about inflating the market, Bruno believes “that reducing the entry cost and spreading the interest to a wider and younger audience will be beneficial to the marketplace”. He also claims that people like himself couldn’t benefit of the cars’ price escalation of the last decade because there were barriers to entry. “I didn’t have the entry fee of a few hundred thousand bucks,” he says. So he created a company where more people could gain access.
And he is right. There’s nothing wrong if this elite club’s door – along with their classic cars’ – is opened a tad bit wider.