Want to put your money in something like a 1955 Porsche or 1985 Ferrari but don’t have hundreds of thousands of dollars to spend?
Meet Rally Road. The New York-based startup lets investors buy a real equity stake in a classic car for as little as $50. The company just closed a $2.9M seed round led by Columbus Nova with participation from Social Leverage and other angel investors.
Here’s how it works: Rally Road finds a classic car for sale and creates a new entity (a subsidiary of an LLC) whose sole function is to hold the car’s title. The startup then holds an SEC-registered offering where potential investors can view details about the car and if desired purchase one (or more) of 2,000 equity shares in the entity that holds the car’s title.
During the offering you can see the car’s history (like who has owned it in the past) and the the value of similar cars sold over time, so investors can get a sense of historical pricing.
When the offering is completed there’s a 3-month hold period, after which Rally Road’s app provides a monthly trading window where new users can place bids and existing investors can place asks, allowing the equity shares to be traded on a marketplace. All trades are settled through a registered broker dealer (that’s currently licensed in 32 states with more coming), and the SEC permits any level of investor to participate in the offering and second-market trading platform as long as they pledge to not invest more than 10% of their net worth.
It’s a pretty novel concept, that’s for sure. The cars are 100% owned by the special purpose entity, which in turn is 100% owned by the investors that hold the 2,000 shares of stock.
The special purpose entity structure gives investors lots of interesting potential opportunities down the road. For example, someone could theoretically make a tender offer for all 2,000 outstanding shares, and if investors accepted the offer the buyer would own the car in full. Or imagine a world where museum wanted to borrow a certain car and offered to pay a one-time dividend to all shareholders.
Eventually Rally Road hope to expand to asset classes outside of classic cars. Why not turn a rare Basquiat into an LLC and offer shares to investors? It’s not hard to see a future where any asset that is rare and desirable but too expensive for the average person can and will be turned into a dividable entity.
The museum-quality cars are kept in a purpose-build, temperature controlled environment which is prepaid for by money raised in each offering. Investors will soon be able to watch a 24/7 live stream of the car they own a stake in. Rally Road currently takes no management fees or share of the offering, but plans to offer additional premium or subscription services in the future to generate revenue.