183: Investing in Collectible Cars!
Buck: Welcome back to the show everyone. Today my guest on Wealth Formula Podcast is Rob Petrozzo. Rob is the co-founder of RallyRd.com, that’s RallyRd.com. Rally Rd is an app-based exchange for buying and selling equity in assets such as ultra rare classic car, is something near and dear to my heart. Rob welcome to Wealth Formula Podcast.
Rob: Thank you so much for having me. I sincerely appreciate it. I’m glad it’s near and dear to your heart as well.
Buck: Well yeah it’s funny because we actually connected after I did an interview with a well a friend of yours and who was in art and I you know I was like wow it’s kind of like cars in a way right and then he’s like well if you like cars you gotta meet Rob because he’s doing cars. So here we are. So give us a little background on yourself. I mean what were you doing before this venture, which we’ll get into in detail a little bit later, but how did you start out and end up where you are now?
Rob: Yeah so my career trajectory has very much been a lot of it’s been a mix of sort of design and a little bit of finance and those two things together I think with the sort of the precipice for getting to where we are right now as a company. So I was in school in the 2000s and it’s an era when design was very different than it is right now and product and web sites all that stuff was very almost archaic compared to where it is right now. So a lot of what I had was very much self-taught. So learning a little bit of code, learn a little bit design in school, but getting out of school around 2006-2007 when the iPhone had just come out and in New York in particular there were so many new companies trying to do something with the iPhone and sort of bring that experience to life, they can kind of see where the app store was going to be and where all these third-party applications were going to be. So I wound up working at a company called Scroll Motion that was one of their early employees building out a big digital publishing company where we would take a bunch of existing content from big banks companies like Citigroup and and some big players in the pharmaceutical space like Genentech and Roche was about bringing all their sales and training and all this material to life from what was printing material and making interactive. So led to a couple of stops and a bunch of big startups gonna come to called Keamy here in New York which is a computer vision play. I build out a bunch of internal software for hedge funds here in New York as well who are going through this big transition between 2010 and now where you know everybody kind of expects everything they’re doing whether it’s finance or whether it’s sort of you know investing or whether it’s just general consumer behavior on a phone and have it look and feel like the things they use most so I’ve been a designer and building our product for all these individual instances for a long time and things like classic cars and rare collectibles all these things have been a part of my life for a long time. So talking with a couple of friends were in the space but more to do next and this natural progression.
Buck: How did the idea of doing some kind of an exchange where did that come from?
Rob: That was there like that was a a mix of a few things one and I think you know you know this well and what real estate is kind of done since since you know 2008 to now I think a lot of people missed out on a lot of things from the bottom to where we are now in 2019 and one of those things was the idea of alternative assets. So myself, two my close friends my close friends was Max and Chris so I’ve known for you know twenty fifteen years respectively. Max coming from Barclays he was doing a bunch of private placement deals Chris was a kind of serial entrepreneur and somebody that I really respected in the space who kind of knew all the ins and outs of what building a company from scratch would be and then me from the product standpoint having built out all these apps, we knew we want to work together in some capacity we also knew that we had missed out individually ourselves on all these great investments and I think it could have gotten at a really meaningful price point with a big chunk of equity and wrote it over the last ten years, one of those spaces was classic cars something that we all really cared about, but something that I think there was this huge Delta between the haves and have-nots. So the idea of going to an auction seeing those prices and understanding this stuff and really caring about it and having the sort of money in the connections to get involved there’s a massive Delta there so we knew that was a space that A we cared about, B was ripe for disruption and C a space we’ve all kind of missed the boat when it comes to sort of putting your money where your mouth to it make an investment. So we started what this could be and where the exchange aspect we can kind of marry the experience with the financial sort of end of it and this was a natural conversation that we have we just started kind of building it.
Buck: Well is traditionally you know you’re alluding to this has not been a market open to many investors you know dropping a lot of cash on individual assets there certainly is you know ways to you know leverage and and get a loan on these types of things but talk about you know traditionally where this market has been who the investors have been and you know what kinds of potential returns they have seen historically.
Rob: Yeah so when you think about sort of the asset class as a whole which I’m sure you’re familiar with classic cars and quite two cars in general especially at the top of the top. You’re looking at three four and five hundred percent returns sort of a little bit uncorrelated but within individual groups over the last decade let’s call it. Within that you have pockets of sort of untapped gems the way we look at it where we have what’s happening now in the space with 80’s and 90’s sort of collective vehicle stuff that’s really low mileage that’s from the European producers whether it’s a Ferrari or Lamborghini and are sort of creating very very small batches that were very rare to begin with. A lot of them were the last of true manual transmissions or were really small samplings of what would be something that would evolve and turn into a new model. Those of you those really highly sought after right now we’re seeing gains in those spaces Trump what were the traditional classic car Kings so when we look at the next generation of collector the 30 year old the 40 year old and the 50 year old now, what they’re remembering the nostalgia is that 70s 80s and 90s and that’s what we’ve been really focusing a lot of our attention on and personal investments also for the app. So whereas you would normally see you know we don’t really annualized returns a lot of them move very independent, in our app some of the stuff that’s done best over this period over the last two years call it are things you wouldn’t necessarily expect, so things like 90s era Ford Mustangs which were of a really small sample, a very specific few like one that we have was a part of a 7-up promotion for the NCAA that they were getting pulled last second but they have all these really unique versions of that vehicle around so we have one of the best examples this year it’s up 43 percent in our app. And then we have stuff that’s a little bit more a little less esoteric I should say like Ferrari Testarossas to a big group of the core collectors who would go to the Sotheby’s and the Goodings to make their purchases, we’re kind of under the radar they weren’t things they cared about. But now we have a really great group of collectors who realize what the potential for a car like you know an early model Testarossa some of the flying mirror versions from 85 and 86 which now are starting to sort of coming to focus and they’re still in the under half a million dollar range but they show really well on their starter so to get a little bit of upward trajectory on them. That’s the stuff that we care about I think a lot of collectors are moving into as well.
Buck: Now so who were the collectors before and who are they typically more and they do they tend to be you know when you talk about the collectors I mean obviously they’ve got to have enough do it or you I mean is this an area that’s we’re just billionaires or is it also for high paid professionals, who are you seeing buying the stuff tradition I mean who’s who’s been the buyers of these things?
Rob: Yeah I think you’re pretty much spot on. It’s both of those groups. So you have the sort of people who look at these collections as a financial investment and they get access, that billionaire or like 100 millionaire is always going to get access to the best possible stuff and they get it in bulk so when they make the purchase it’s not one or two cars it’s whole collections and they have sort of the Jay Leno’s of the world and they have someone to maintain it and have the right storage at the right temperature the tires get rolled regularly it’s that storage and maintenance component that they don’t have to worry about and that’s when you have those 200-300 car collections and that’s the one phone call before it even goes to auction they get that stuff. Thing’s here is somebody who maybe has two or three cars sometimes even just one they were very focused collector a lot of times they’ll focus on the time period or certain make a model they’ll put a million or two million dollars to the side and they’re sort of actively looking and they’re always paying attention, that’s like the core auction consumers. So you have somebody that goes to auction where it’s a very small group the books for an arm Sotheby’s are Gooding for example might only be you know sub 1000 people that are on their list kind of people that they want to make sure you know about a particular auction, but even then they have that very specific list of professionals in the space you have understanding of the space we’re looking for one or two specific things, when those come across their table they’re making that one direct phone call to that high net worth individual who they know for the last year or so has been looking for that particular car, that’s what it’s been to this point. And for our user group it’s very much it’s retails the enthusiasts who cares they might know every detail about a car but in order to get access to even one even if they had the cash requires a level of a lot of ignition and of understanding and an access that has been has eluded them to this point, us included and myself and my co-founders part of that group.
Buck: Classic cars in general I mean that’s it’s got to be I would think it’s got to have some correlation of the economy.
Rob: To some degree for sure. But what we’ve seen is that there’s there’s two sets so when when things go up into the right everything goes up into the right you know how that goes it really saves a lot of that too. But we’ve seen is that when you have stuff that’s under the radar I think the collective group that group that I talked about that was the legacy collectors they move in bunches so if everybody’s on course for a little while every all them are on Porsche and then they’ll kind of phase out, Porsche will become sort of under the radar a little bit the move to Ferrari a little moved to 60s era Maserati and that kind of drives allow the movement from a small group so what we’ve seen is that the uncorrelated returns are coming in some of these 80’s and 90’s vehicles that have attention or from the five or six or seven people that were moving the market previously they weren’t getting that attention they’re only getting it from the enthusiasts. Now the enthusiast comes in the ability to sort of disrupt that market a little bit and take what was under the radar things like the idea that you know certain cars mimic others but like a Ferrari f40, someone who looks at that as the million dollar trophy wasn’t always looking at the Ferrari Testarossa or the Ferrari 512 and you’re starting to see the dynamic of the collectors and investors moving out of what were those older Ferraris and the more sort of the sort of prestige Ferraris moving into the lower production number but newer Ferraris, the new collector models and that makes something like a Ferrari Testarossa go up 17 or 18 percent over the course of a year whereas the SMP might be flat and other Ferraris from a similar era but with a different dynamic might be flat and that’s kind of a sight to see right now.
Buck: Let’s talk specifically about, am I pronouncing it right? Is it Rally Rd?
Rob: Yeah so we say Rally, it’s all the same with the Rd for us was kind of like the Wall Street is its own place Rally Rd other place kind of at it.
Buck: So it’s yes Rallyrd.com so who is it for and what exactly is it?
Rob: That’s a perfect question so we always look at it that rally is about rallying everyone together at people that really care about something people that have sort of interests but have been on the sidelines just watching and letting them get some skin in the game and get some real exposure to the asset class. For us it’s about people very much like us I think that have always maintained an interest they have a lot of information they want to be educated more about what an individual asset or individual asset class means and their mobile first so that people that come in and do it in an app through the website but doing the way where they really want to understand this story and not just the stock ticker they want to know more about what this asset actually means what the value chain looks like they want to see returns over time but know the story as well. So for us Rally Rd is this app it’s a website and it’s an iOS app for Apple for iPhones where we let somebody really learn everything about an individual asset and make an investment that they’re comfortable with. So we have no minimums we don’t have any sort of restrictions, it’s not for accredited investors only we have some accredited investors we have some non-accredited investors. It’s really people who understand what these things are why they’re meaningful, they understand that they should be treated like art and that we’re trying to find best quality examples and allow you to invest in a position that makes you comfortable without expediting a user or trying to speak down to them. I think Wall Street a lot of times use a lot of acronyms and they kind of speak to things in the way where it’s very much inside baseball, we want this to be for everyone.
Buck: Yeah okay so let’s talk about it sort of on a you know nuts and bolts. Where do the cars come from, are they selling and what is you know the role of you know Rally Rd. in the process?
Rob: Yeah we’re essentially the we’re managing this process start to finish and we’re trying to kind of stay as far away from your decision-making as possible.
Buck So you’re are you functioning essentially as a broker in this process from a seller you know seller who wants to come on the platform and sell you know equity in their car?
Rob: We’re this kind of middle layer that works in a way that there’s a lot of people have access to fantastic vehicles and those are the people that we take Network those are the relationships that we’ve established so a lot of them are private sellers some are estates some are even the auction houses where you know if you were to sell a car at auction right now the process to get that done it takes time, it takes money, you’re getting charged 25% one way or the other on some side of the transaction on both potentially and it’s kind of out of your hands. We want to make sure it’s a thing that the sellers of these assets who maybe have made some money on paper but need some liquidity out of it and the buyers who really are on the sidelines of these auctions but want to get access can meet in the middle of best possible price. so what we wound up doing is sort of getting access to the best we’ll stuff with our we have a huge network of advisors really well-known names in the space some of the smartest people in the business with hundreds of years of experience. We have kind of an algorithm that speaks to where value might go because we’re investors as a company as well so up to ten percent of every asset we buy the same price as investors we can never sell until the car exits either so we have skin in the game the same way we believe in these assets and then the buyers that will bring it to the platform we’re doing it in a way that shrinks down the proposition to tell the best and quickest possible story and allow you to make that decisions you want to invest or not. So everybody in the app sees the whole sort of process start to finish with no sort of need or requirements to invest and there’s no share minimum so if you wanted to is usually at a meaningful price.
Buck: The seller is is it I’m trying to understand how that transaction actually happens is that they are I mean are is is your company buying the car ahead of time and then and then basically you know selling fractional ownership or is that actual transaction happening in real time as people buy you know buy equity in it?
Rob: Yeah so it’s both it’s a good question we if we can buy opportunistically then we’ll take money off the books and make that purchase because we’re investors as well so if there’s ever a situation where something comes for auction or for sale or an auction company is unsure that it’s going to sell to their group that they bring into the small group, we have the big group and whereas people that really understand how this process works. If we have you know three Ferraris that we’re looking for specifically and the data suggests that the right purchase our user group is asking for it and something that we care about and those come up and they’re available will make a purchase to put that on the books because we believe. If it’s an instance where you sort of you know have a great investment you have a vehicle that’s worth a million dollars and you know you’re in a position that you want to sort of get liquidity out of it because all on paper but not go the auction route, we have a situation now where our IPO process we bring the car to market for the first time and set the price they happen quick. So we’ll do you know around ten thousand dollars a minute an initial offering. So we can do something like a debt agreement where we had that agreement to purchase over two months or three months at a very well set price that everybody agrees on, keep the car where it is we’ll get some pictures of it and make sure that it’s being maintained appropriately which in almost all cases these are from collectors they are, then we’ll run the IPO on our platform come back with a check for you and then we’ll take possession of the vehicle and put in our storage facility where it’s being maintained in concierto four hours a day.
Buck: Got it. So talk a little bit about you know how far along you are in this business, you know what kinds of things have you done so far, how long you been in business what kind of performance people have seen that sort of thing.
Rob: Yeah so we’ve been in business officially getting close to three years. So we launched in we officially launched November of 2017 I believe was our first IPO. First one we did was the first set we did was this 1977 Lotus Esprit and that’s a car that even the example the whole trajectory over the last two years on our platform, we do the IPO, once the initial offering is done at that price which in this case was seventy seven thousand dollars, there’s a 90-day lockup period where no transactions happen and then we do once every 60 days 30 to 60 days to trading room though where we reprice the asset bring a bunch of buyers and sellers together with kind of bid esque and set one clearing price end of day that matches the most possible orders.So that’s how we kind of give a look put into actual investors. Over the last two and a half years with that vehicle on the platform itself around 35% and that’s pretty I don’t wanna say standard because you can’t obviously promise any returns, but that’s kind of the cars that we’re bringing onto the platform right now that’s pretty indicative of what the trajectory looks like if we’re buying well which in this case we obviously did and we’re always trying to find something that’s a little bit under the radar that we feel like our investors would really benefit from hearing the story of a vehicle like that which is you know a Roger Moore James Bond car and it’s something that was the baseline for what became Tesla and the engineers from Lotus were working on those cars so it’s very very culturally relevant something that looks and feels great it was a perfect example and something that lives on a platform still.
Buck: One of the things I guess I didn’t quite completely address is there’s you know obviously there’s liquidity here right I mean so the idea is that this platform basically you can buy and sell your equity, it’s not just buying a fraction of a car and then just waiting for it to be sold or can you then turn around and sell it on an open and market.
Rob: Yeah so I should have mentioned so so the big differentiator for us I think is that we had that liquidity component. The big thing for us was always we first started this business was you know unlocking that liquidity which for a lot of people’s on paper both for the sellers and for buyers who own a lot of this stuff. So where’s a lot of platforms are doing loans against assets and they were doing things where was more buying hold with a very specific redemption period we wanted to make sure it was something that was accessible and then you can exit. So not at a point that’s continuous market yet the goal is to eventually get there but assets like this what we’ve seen is that we have a really responsible marketplace and then you know the bid-ask table which we published for everybody when we do these trading windows allows you to see kind of where the price movement and that’s a little bit of an indicator of where it’s gonna go too so you know a big thing for us always to make sure that liquidity was available.
Buck: You mentioned you mentioned a little bit about the business model but a just and just to re-emphasize so we have a lot of people are familiar with private placements in the group but this is really isn’t a private placement per se, this is this is effectively brokering that’s kind of what your company does right? I mean or or are these individually you know are these all filed with the SEC?
Rob: Yeah so these are all a plus qualified offerings with the SEC.
Buck: Each one of them? Each individual asset?
Rob: No an LLC so this isn’t a bucket of assets you get to sort of pick and choose the asset you invest in. I’m really should have made this point earlier and really sophisticated investor group where the listens they’ll understand this part. Each individual asset is essentially its own series LLC company that lives on top of which there’s a shell all these individual assets. So we have last week was a 1991 Ferrara 1989 Ferrari, that was 1989 Ferrari LLC essentially we’re its own company that asset has a bank account has a bunch of investors on the sale.
Buck: You’re actually filing these? I’m getting into the weeds but I know there’s just people who know this. If you’re filing these things individually, I mean don’t you have to go back and refile every time you add a car and that would take like over a year just to…
Rob: Yeah so in the past that did so in the beginning the first one we did took nine months and we were kind of the first people to do it. The SEC has gotten comfortable with the way that we process these transactions we’ve done in a way that has become very efficient. So we’re at a point now that if you had a car to sell we have our paper where templated where what’s changing, the risk factors stay the same a lot of details around the actual offering stay the same the details for individual vehicle because we only take cars that have a very succinct timeline where there’s no gaps that have very specific check marks that we always want to hit before we take them. So we essentially have a 90 percent of that offering statement filled out before before we submit. When we get that individual vehicle you plug in the details which in a lot of cases mileage transmission things like that, we submit on around a ten to fifteen day turnaround right now. So we will do these really efficiently we’re able to do it away that’s not cost prohibitive and get qualified offerings back in under a month.
Buck: Wow so ten to fifteen days with the SEC, I mean.
Rob: Now. Three years ago it was a nine month process. You know so we’ve gotten really the way that we’ve developed a lot of what we do we keep a lot of smart people around this normally have a great legal team and Max CFO is just incredible sort of turning these around quickly now it’s a lot of us have been created around the efficiency of taking anything public. So I moved doing it with cars right now but as we move into you know baseball cards and and wine and whiskey and all these other elements, it’s a very simple process that we have nailed down at this point.
Buck: So you know what are the I guess one of the things that you know as a as a guy who likes cars and and a guy who likes whiskey and a guy who likes all these things you you think well gosh well part of part of being a collector and buyer of these things is being able to experience what you actually bought. Is there a way to do that or is this purely like okay well this is what you got and you know you own part of this car and you can look at in this app but you know or is there a way to see touch and feel what you own?
Rob: Yeah it’s happening so we always try and make sure this way for investors not just see what they invest in but to really experience them. So the first iteration of that is we have a retail storefront here in Soho right below our office where there’s a marquee offer any we put it in the store. So literally right now in the store is the 1994 Lamborghini Diablo, we have a really great build-out around it we run events in that space we sell merch there also that drives dividends for investors. So any profit we make in the store any investor in that car gets a special dividend check with anything we make on top of it. So if we have twice a week now we’re running events for you know the community for hedge funds for a bunch of private equity companies and people in our space will run events in our space they pay for that opportunity it goes this is a bank account for the vehicle which is paid a special dividends for the investors. That’s the first part of it. The second part is that we have a lot of great people around us and now and then we form these awesome partnerships where we have you know hundreds of thousands of people inside the app who love these individual asset classes and want to learn more. So what we do is you try and get the best possible examples into the platform into our collection that we can maintain them in future generations that these asset classes stick around what we’ve done is we’ve partnered with like in the wine and whiskey space we have three or four great names that we partner with. We’ll do private tastings with our investors and do some really great Lunch and Learn type stuff with the cars we deal with a lot of individual tracks and spaces outside of New York where we can bring a bunch of investors together and let them drive some similar examples and get a real feel for what these time periods are. So layering on that experience is always a really important part of for us from the beginning and now it’s gonna do a lot more of it and making sure that investors always have access not just what they invested in and they get the see and understand it a lot more but also get access to experience that or experience things that are really very similar in the same space.
Buck: I guess the you’d mentioned sort of briefly and they that you store the car. So can you talk a little bit about specifically you know where and you know what what measures are taken to to make sure that those assets remain you know unscathed.
Rob: Yeah yes we have individual location in a couple of places. The first of which is in Delaware which is very similar sort of a Freeport where art might be kept its secured facility that was purpose-built for this reason we have 24-hour concierge camera which were starting to surface into the app which we’ll show more of soon the tires are rolled on a scheduled basis this closed track behind that storage location and then any of those changes going to the statements in the app. So because this is sort of SEC regulated because everything is is purchase and transact two registered broker-dealers, we’re required by law to surface all the information that might change it. In terms of insurance we have this full fleet insurance where now attracts less price so in the event that something were to happen to the vehicle unforeseen which they’re not driven that professionally maintained and stored we shrink down that possibility to near zero but an unforeseen event whether it be a natural disaster or something else the last price is paid out to all individual investors based on the insurance policies as well. And now I’ll be doing more with bringing those cars to all one central location on the East Coast where we’ll be more of a museum kind of like a museum style setup before we’re doing soon.
Buck: Cool. Where do we learn more like if people are interested and want to talk?
Rob: The press have been really good to us so googling Rally Rd. to bring up some great stuff but also a little more website where RallyRd.com same thing in the App Store it has all the details about what we do and we’re always open to that conversation so that I’ve given my phone number out to hundreds of users where I talk to them all the time now. I want to make sure that we’re always communicating and then in New York we’re right in Soho to on swiftly Lafayette Street anyone the East Coast this is our first location we’ll do a lot more of this but come in our staff kind of works is very much like investor relations where our entire staff and our retail team is trained to really understand everything about these vehicles, people sort of learn and teach the same way that they would if you walk into a Petersen museum.
Buck: Well guess one last question I should ask Rob is that if somebody is listening and is saying gosh you know I like the fractional thing but I really just I’d like to buy, I like where I can you know actually source you know a Lamborghini Diablo or something like that that I’m gonna take down myself do you do any of that or do you know?
Rob: Yeah absolutely so we’ve had a couple of exits off the platform. So the two cars that sold over the last six months one was a 2000s era a really special Mustang another was a 2006 Ferrari F430 the last gated manual Ferrari and those sold for seventeen and a 19% gain respectively. So we always want to sort of get the best possible version so that when it’s time for someone to come buy it instead of having to go through the auction house they come straight to us and a lot of times we’ll have best examples. So we treat it, it’s in the app right now and they could always to us as well for anything in our inventory, but it’s kind of like a hostile takeover so you have to buy all shares, we bring that price potential price of the shareholders once qualified if we get that sort of majority decision we go to our advisory board who makes the sale and delivers the vehicle directly to that buyer.
Buck: Well this is a super cool business yeah kind of jealous.
Rob: Likewise and I wish I had to set up like you do in the house right now I’m a little bit jealous of your setup right now.
Buck: I don’t know I’d take the Ferraris over you know my headset and mic,
Rob: I’m definitely spoiled in that respect I’ll give you that.
Buck: Yeah well thanks again for being on the show man.
Rob: Likewise really appreciate it.
Buck: We’ll be right back.