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May 7, 2021

Rally and The Age of Fractional Ownership

Investors of all breeds are taking to the fractionalization of a new asset class. Phillip and Brian sit down with Rob Petrozzo, Co-Founder and CPO of Rally, to talk about how they’re building a brand new type of customer, while acquiring some of the most unique assets ever put up for IPO.

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Investors of all breeds are taking to the fractionalization of a new asset class. Phillip and Brian sit down with Rob Petrozzo, Co-Founder and CPO of Rally, to talk about how they’re building a brand new type of customer, while acquiring some of the most unique assets ever put up for IPO.

Nostalgia and Monoculture

  • Rob shares the story of how Rally acquired a copy of the Declaration of Independence, and their plan to make it accessible to the public
  • Gen Z is growing up to be a completely different wealth creation cycle then the one that currently exists
  • Rob breaks down how Rally operates, the legal system that makes their IPOs possible, and how the system they created is both an online and in-person museum
  • “We tried to create an ecosystem that is built around access but has a little bit for everybody involved, people that care about these assets individually.” - Rob 
  • “It's more important to have one of those sort of the Genesis moment of a franchise that I truly do believe has staying power and will live forever, then it is to have stock in a company where I'm beholden to, you know, a car manufacturer and something that's a little bit disconnected from the CEO of that company right now.” - Rob 
  • By keying in on nostalgia, Rally is unlocking the interest of a new type of investor. Nintendo’s mark on the culture has a strong nostalgia with a current generation experiencing new liquidity, looking to invest into new asset classes.
  • “Anything that has that huge enthusiast group, the people who really care about it, has gotten out of reach because of access or price, that's a space that we want to be in.” - Rob
  • Speculative future assets may be absurdist in nature. An example Rob gives is a Theranos centrifuge. It may not be worth much now, but acquiring it now for its potential future value is something that Rally thinks a lot about as they build for the future.
  • You cannot buy spent Chernobyl fuel rods on Rally (yet).

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Brian: [00:01:24] Welcome to Future Commerce, the podcast about next generation commerce. I'm Brian.

Phillip: [00:01:27] And I'm Phillip, and we have a special guest today, but I'm going to roll an audio clip to see if you can guess who it is. One second here...

Movie Clip: [00:01:35] I'm going to steal it.

Movie Clip: [00:01:43] What?

Movie Clip: [00:01:43] I'm going to steal the Declaration of Independence.

Phillip: [00:01:46] This is like a highlight moment for me.

Brian: [00:01:49] Welcome Nick Cage! {laughter}

Rob: [00:01:52] {laughter} Thank you.

Phillip: [00:01:54] We have the Chief Product Officer over at Rally, Rob Petrozzo. And wow, you guys did it. You're selling well, not the actual Declaration of Independence, but today's big day. Big announcement for you guys. Welcome to the show.

Rob: [00:02:10] Thank you for having me. I appreciate it. I apologize, too, for anybody that thought it actually was Nicolas Cage, so hopefully it's not too much of a letdown.

Phillip: [00:02:16] {laughter} I mean, the only person who could possibly top you is maybe Nick Cage. That's the only one.

Rob: [00:02:22] I appreciate that, man. I appreciate that. That's big shoes to fill.

Phillip: [00:02:25] Big get for us on this show. Glad to have you. For those who aren't familiar with Rally, that means you probably haven't read our 2021 annual report on futurism and how it relates to commerce. It's called Vision, where Rally was featured quite heavily in a category called the Age of Fractional Ownership. But I kind of teed it up there. Rob, what is Rally?

Rob: [00:02:48] Yeah, so I'll give you the quick rundown. The platform's called Rally. So it's for buying and selling equity and unique, often one of a kind assets, with typically historical and cultural significance. So things like the Declaration of Independence Broadside copy, baseball cards, vintage watches. So we started in 2017. We started with classic cars. And that was an asset class that has this huge enthusiast group around it, the people that really care. And as prices started to go crazy throughout the you know, from 2009, 2010 or so to now, the best examples became out of reach for that group. So for us, the idea was, let's give access to that group of people who really care about it with the best possible examples. And we do that fractionally. So what we do is every week we run kind of like IPOs. We call them initial offerings that allows investors to purchase shares of assets similar to the way that you purchase a share of a stock or a commodity. So we also facilitate a secondary market too, that allows you to sort of buy and sell those shares after a 90 day lockup period. Again, kind of similar to the stock market and doing it in a way that allows you to sort of invest in the things you really care about, but without any minimums and without sort of the redemption periods that go with hedge funds. So we really tried to create a brand new marketplace that allows you to kind of put your money where your mouth is in the assets that you really care about.

Brian: [00:04:05] So cool.

Rob: [00:04:07] That was a lot. That was I ran through that quickly.

Phillip: [00:04:08] No, that's good. I want to get that out of the way because there's probably a million shows where you could probably get the deep dive on what Rally is or how it came to be. Brian and I thought we'd take it a little bit of a different direction. I'd love to kind of future cast a bit on how you're acquiring customers or creating new customers that wouldn't possibly ever think that they could own the Kobe floor. There's so many things that you have that you're poised to be able to do in creating a different type of a consumer of this kind of an asset class. And that's really fascinating to us. Can we just get... Address the Nick Cage in the room. How did you guys acquire a copy of the Declaration of Independence?

Rob: [00:04:57] Yes, so any time we go into an asset vertical, and for us now we're at 12 or 13 different categories and it's, again, classic cars and it's vintage handbags and all these sort of really unique sports collectibles. And we went to political. And political memorabilia is one of those things that it encompasses so much of the last, call it, two or three hundred years. And there's certain things in each asset vertical when we go into them that we kind of earmark as this is the must have. So for baseball cards, for example, that was this the T206 Honus Wagner card, which is like the most famous baseball card of all time. We went into like handbags, into Birkin bags, Faubourg Birkins, which are based on this specific flagship store in Paris and have this very specific look and feel, one of 50 is like the mountain top. So we knew we wanted that. When we started thinking about political memorabilia, there's a few things that jump off the page. And Abraham Lincoln is one of those. So we have a really unique signed photograph of Lincoln and then the Declaration of Independence Broadsides, which are a lot of people don't necessarily know the full story behind it, but the original Declaration of Independence, the one that everybody knows from school, is on permanent display in the National Archives Museum in D.C. with the Constitution, the Bill of Rights, and that's in the Rotunda and the crazy room where everyone sees the picture. And it's like one spotlight on it. But what happened was there are these individual Broadsides, which are these large single sheet direct copies of the declaration which were used to kind of get word of independence out in the colonies. So that's like, you know, the old school picture of a guy in the middle of the town square, the  "Hear ye," reading to everybody. And that was kind of like the first version that everybody got to see, got their hands on and really understood as the Declaration of Independence. So there's only a handful of those that exist, most of them from private collections. The one that we have is called a Walsh 15 Declaration of Independence Broadside. It was from Exeter, New Hampshire, descended through multiple generations. One family from Charles Toppin, a really renowned engraver. We knew that we wanted that early on. It was probably a year and a half long process to get our hands on one because they trade so infrequently. So we have a great network around us. And we built up this awesome sort of group of people who source our assets, who put us in contact with the right people. We've established so many great relationships. So this was kind of like one of those sort of work on it for 18 months and then like it was time to make it happen really quickly. We're flying people out to do the authentication, to do the last pieces, you know, put it in the briefcase. It actually was very much, it was like the legal version of what Nick Cage did to a certain degree, because there's a lot of cloak and dagger around it. But when everything was said and done, we got our hands on something that's a really, really unique one of so few. And it's something that I think our user base is going to be really excited about in May when we run that offering.

Phillip: [00:07:43] Whoo.

Brian: [00:07:43] That's so cool.

Phillip: [00:07:44] And you're making it so accessible too. I think that's the other thing. Correct me if I'm wrong, something to the tune of eighty thousand shares at twenty five dollars apiece or something.

Rob: [00:07:54] That's exactly on point. That's more than... Sometimes even I forget. So I'm glad that you just get the full reminder of that. But yeah, so it's a two million dollar copy and these trade anywhere between sort of a couple of hundred thousand and the Dunlap copy, some of the first ones, eight, nine million dollars at auction. So we try and price it based on a lot of the dynamics that exist right now with existing copies. But at the same time, from an accessibility standpoint, twenty five dollars per share, eighty thousand shares and it's going to be, again, no minimum. So if you want to buy one share, we really want to make it accessible in a way that any price point, any level of comfort that you have with that investment. And that's a big, when we think about differentiators in the way that you purchase equity on Rally versus the way my purchase it on Robinhood, you know, the most popular stocks, the Teslas of the world, the Amazons, the Apples, if you want to come out of pocket and buy one share, it's a significant investment. If you want to buy one share of Amazon, three thousand dollars is not the same as twenty five dollars for a share of the Declaration of Independence. Even, you know, the fractional companies that are doing it now with stocks, the feel, even when you get it for a small piece, is still a ticker symbol. So we've always kind of wanted to create emotion, create real history, and create that conversation and also do it at a price point that doesn't push a huge portion of our potential, the people who really care about it, the interested investors, away from us. So we've always tried to keep it very, very accessible on price point and share price.

Brian: [00:09:17] Wow, that's really cool. In my head, I'm like, there's going to be a new generation of investors. And we sort of said something like this on the show before that are like, "Yeah, I got in early on a full set of Pokemon cards, part of the Declaration of Independence, and some of those drops Yeezy drops back from..." Whatever it's going to be. {laughter} This is a completely different sort of like wealth creation cycle for Gen Z that they're coming up in compared to like when I was growing up.

Phillip: [00:09:56] Is it Gen Z though, Rob?

Rob: [00:09:57] But it's such an exciting time, man. We're all old men at this point, like there's a, you know, not to take out anybody's age.

Phillip: [00:10:04] No, I'm old. Yeah. Don't worry. Yeah, I own it.

Rob: [00:10:09] When you guys see... When you guys talk to, like, I don't know how many 17 or 18 year olds you guys talk to on a regular basis. I try and keep like the young, the next generation, around me as much as possible, like interview them when they don't know they're getting interviewed because they see around corners that we didn't, too. You know what I mean? Like if you told any of us in 2009 when the world was ending, like, "You guys should really put all your money into Pokemon cards." I wouldn't have been your friend anymore. That would have made absolutely no sense in 2009/2010. But these kids now, like, they see a mix of opportunity. They understand the history of this stuff. And also they go really, really deep on the educational aspect, too. So even [00:10:41] on Rally, when we bring somebody in to the platform and they find their way in, word of mouth has always been the biggest driver. And you have like these alphas of these friend groups who want to know everything about what they're doing and get there first and then tell everybody else about it. That's the one big differentiator is that they have all these resources for information and like their risk tolerance is way different than mine was when I was 18, 19, 20 years old. They don't care. Buying the dip is a lifestyle choice for them. That is not a freeze.  [00:11:11]

Phillip: [00:11:11] That's true. It's so funny just to now be old enough to have seen the news cycle a few times around about these, you know, the defining moments of an entire generation, not having access to some sort of like upward mobility. I've now heard this now three times. I heard it around 9/11. I heard it around 2008 in the housing crash. I heard it around the pandemic. It's like these are going to be the things that are going to rob an entire generation of wealth creation. And, you know, some people turn up and be like, yeah, but I got Pokémon cards, so I'm cool. You know?

Rob: [00:11:47] It's crazy. {laughter}

Phillip: [00:11:48] It is. I'm curious, having done a little bit of research for Vision and heard other podcasts, especially like Packy McCormick's Not Boring and the deep dive he did on Masterworks, I sense I have some idea of how a platform like Rally might work legally. I sense or I assume that it's enabled by the Jobs Act and some crowdfunding capabilities that came available through that, I think back in 2011 or 2012. Are those assumptions correct? And maybe you could give us a little bit of an overview of how it works legally and how you're able to even make Rally work. And could it have existed before?

Rob: [00:12:32] Yeah, that's spot on. I mean part of the... You have these two things that we hit on that really helped this business. One obviously was new legislation and the other was what we talked about just now, where it was a willingness from a new investor to invest and understand new items, new equity, and new methods of investing. So, you know, when we started this business, the investing sort of companies that came before, they looked way more like private equity or they looked more like sort of hedge funds. And they were spinning up these deals and baskets of assets for high net worth individuals who they deemed to be sort of more suited for this investment type for alternative assets. So what happened in 2012, as you mentioned, was there's legislation known as the Jobs Act, which effectively loosened the regulations instituted by the SEC on small businesses, which allowed them to kind of effectively raise money to support that business from non accredited investors. So investors who didn't have a couple million dollars in the bank who aren't making a couple hundred thousand a year consistently. So that became a really important part of this business. So I'm paraphrasing a very elegant and complex set of rules that came along with that legislation, but the non accredited part was the most important for us. And when we created this business, we wanted it to be for everybody. So with the Jobs Act and some of the legislation that came with it, the SEC effectively recognized, to your point, that if we want to close the wealth gap in this country, it requires way more participation. And the Jobs Act opened up what was known as Reg CF, Reg A+, which is what we use. We leverage that to allow investors of all income levels to participate. So we took this new investment type to our lawyers. And, you know, this is a big credit to Max and Chris, my two Co-Founders, who are way smarter than me when it comes to the deal structure and understanding the complexity of financial laws. So [00:14:12] together with our legal team, we came up with a method of turning these individual assets, whether it's a classic car or the Declaration of Independence or a watch into small companies. So each asset has its own balance sheet, its own cap table, taxes, all the same things that a regulated small business would have, essentially. And we also found a way to submit each of these sort of individual assets to the SEC and scale that system really, really quickly without having to do them one by one. So we could basically spin up the equivalent of 30 or 40 small businesses, each one's an asset with its own name, submit those to the SEC in a batch, and get back a qualified offering statement through Reg A+ that allows us to let not accredited investors invest in each one of those one by one. [00:14:55]

Phillip: [00:14:56] Wow.

Rob: [00:14:56] Brevity is not my strong point, so that's the long and the short and the long again of it. But all in, you're absolutely right. It's a mix of Jobs Act, Reg A+, and us having a really awesome engaged group of investors who allowed someone like me to design something that keeps all that complexity away from it and let them sort of invest in the things they care about.

Brian: [00:15:15] Nice. That's really, really interesting. It sounds like a lot of paperwork. {laughter}

Rob: [00:15:21] So that's one thing about going back to the office. We have like a little mini vault of... Because we get all these documents from every single state. We have to apply for certain things in every single state. So like the Montana stack of mail over the last year is like this high right now. I mean, we get a little digital, too, but they all still send like the actual tangible copies. So we have like a huge mail vault full of stuff right now.

Brian: [00:15:41] I believe that. I believe that. Just real quick, I know you've done this before, but just so our audience understands a little bit further, talk to us about what happens when someone actually buys a piece of one of these collectibles? The actual mechanics. Where does that asset sit? What happens if you... Can Rally ever sell that asset in total? Like just some of the mechanics of that ownership side of things. And we don't have to go into too much detail because if you want to get a deep dive on this, again, like Phillip said, you can go out and find some podcasts that go way deep on that. And I do want to get into more of how you're reaching new audiences in just a sec.

Rob: [00:16:28] Yeah. So, again, it's one of those things where I talk too much. So I'll give you the full the quick version of that start to finish. So let's say Brian or Phillip come to Rally, and they have this fantastic asset and we know it checks all the boxes for us. We have this sort of internal checklist that has, you know, the assets that we want to target. And it's got all the tangible must haves. So it's things like, you know, airtight authenticity, the right provenance, but also we want to make sure it's something that's going to be relevant in the future and is relevant now, socially, culturally, something that is in the conversation. So if you had one of those assets, you want to bring it to Rally, you either consign it to us, you can keep some of the equity in it and securitize a portion of it. Or if we can buy opportunistically, we'll always do that as well, because we want to get the best deal for our investors. And we're also investors in a lot of these assets, too. So we take up to one percent of each deal, so that we have skin in the game and we can't sell our shares until the asset sells as a whole. So once we sort of give any type of purchase agreement with you and we're like, "All right this is a great asset. It meets all the criteria," we'll submit that offering circular that I just spoke about to the SEC. So anywhere from 10 to 30 days later, we'll get back what is essentially a stock, and that's one that we put it in the app, we'll put it in preview mode for a few days, sometimes a couple of weeks. We open up the IPO. It fills with investors. That happens typically pretty quickly. So again, each asset has its own investors, it's own price, it's own per share. Once that's done, that initial offering is complete and we filled the entire value of that asset, there's a 90 day lockup period. After 90 days, we open up a secondary market that all runs through registered broker dealers that goes once every 30 days or so. And we're moving quickly to get to a more continuous secondary market. So that's one method of potentially selling your assets. During that whole period of time, during that locker, we're always continually searching information about that individual asset. What may have changed, if things have gone to auction that are comparable, and anything that potentially changes the value up or down, so that you kind of stay abreast of what's happening in the space that you've invested in. Then we also have sort of the second part of this, to answer the question about whether or not we can sell whole assets. Everything on Rally is basically for sale at all times. And I think a big part of what we've tried to do is create this digital museum where if you're a collector, you're somebody who really loves these pieces, and you have the money to potentially pay a premium and buy it outright, that's a catalog for you to go through. And it's a diversified catalog of real museum quality stuff. So a lot of times someone will come in hearing a little bit about Rally, and they might have heard about a watch. And then they get inside the app and there's a vintage video game that has a lot of the same dynamics from the same time period, and it's the best in the world. And we have a button inside that app that says, "You want to buy it outright? Let's talk." And it's a button to sort of submit an offer. When that comes in, we have a team that validates the offer, makes sure that you are who you say you are, that the money is available. We'll bring that offer, as long as it's qualified, to our investors and poll them. If fifty one percent of them say yes to the offer, it goes to our third party advisory board to make that deal and sell the asset in the event that it meets all the criteria to sell. So it's really... We've tried to create this world that has a little bit of everything. It's us sourcing great assets. It's the initial offering in the IPO that so many people are left out of right now, when an Uber goes public or Facebook goes public, to get those real unique start of the process shares that we try and give everybody. It's got that secondary piece, and then it's got the exit. So we tried to create the ecosystem that is built around access but has a little bit for everybody involved, people that care about these assets individually.

Phillip: [00:19:55] So the way that I'm understanding that it works is each one of these securities is unto itself an LLC or a business that has an asset on the books, that is this piece that's being, that is under management or you're the custodian of this piece to get it out to the public, and you're issuing shares in that LLC. I mean, is that too simplistic?

Rob: [00:20:22] That's so perfect. I'm going to steal that and put that in one or two of our desks. And I apologize. I might not give you credit for it, but I'm going to bring it back up when it comes around. If anybody asks where I got that from, I will make sure to send some word back your way. But that's exactly what I mean.

Phillip: [00:20:37] Oh, Rob.

Rob: [00:20:37] {laughter} But, I mean, it's basically it's an LLC that owns and operates one asset, and we're the manager of that asset.

Phillip: [00:20:44] Yep.

Rob: [00:20:44] So we store it, we insure it, we maintain it on behalf of our investors. We have a purpose built facility that's concierge with twenty four hours security. We're setting it up and try to do more with experiences around it and do a little bit of a road show with some of the most unique pieces. And then in Soho we have our museum space, which is right under our office, which was the first real sort of tangible and tactile version of what we do. We tried to bring the app to life, so that space is reopening soon. It was closed for COVID for a bit. We're trying to expand it now and think about expanding into LA and a few other places across the country where our user base is. And when you walk into the space in Soho, it's open door retail hours. And we really, we've never sort of, we never really advertised this business, but we've definitely never advertised that space. We put it on a strip on Lafayette Street, again, right under our headquarters. But it's the place where Supreme is one block north and all the cool restaurants are one block south. And it's this sort of hub for tourists and locals and people from New York and people from out of town. Everybody converges in this world where so much of what happens in Soho now is based on commerce. So for us, we want it to be a place where you just walk in and ask, "What is this?" And that we've done really well with that. We put a car every two or three months. We change it out like a new car in the dead center. So you have the James Bond 1982 Aston Martin is in the middle of the space right now. Around it is kind of like the museum infinity mirror set up and you have the Mickey Mantle rookie card and Jordan's game worn 1988 Jordan 3s in one case, and you have the first edition copy of Harry Potter in another. And then there's the ability to potentially invest or learn more on the spot. So we wanted to be like a space and a world where even though the technical aspect is, yes, it's an LLC that owns and operates one asset and that's all done in the construct of Reg A+. The other side of it is, from the user experience and the user journey standpoint, we want people to just be excited about what they're seeing and when they walk into our space in Soho, the "What is this?" and then learning more about an individual asset and then the whole platform, is kind of like the In Real Life version of what happens inside the app. So we're trying to create more of those experiences as well, so that we hide a little bit of what I think people look at as like the dry side of what we do and tell more of the individual stories of assets.

Phillip: [00:25:38] Unlike owning a physical thing, and in no way to take away from what you're doing, because I think you are breaking unbelievable ground in a phenomena that we think is going to transform the way that we think of ownership. So I want you to know how much of a fan I am. But is there a criticism around, well, you don't really own this thing. What you own is a virtualize fractionalized version of a business that owns this thing. And so at some point, Rally might change its mind and dilute your ownership by issuing new shares. At some point, is it the same as owning the thing, or is it a broader idea that maybe we're all kind of coming to terms with and don't have a perfect analogy for in the real world?

Rob: [00:26:26] I think that's a perfect question because it is whatever, it kind of is what people want it to be for them. I think that there are... We have a lot of people who are financial professionals or people that understand the markets. And they'll ask those questions too. They're saying, "All right, this is a subscription kind of it's more of like Gaia. It's a method of ownership that takes one degree of separation because it's an LLC that owns the asset and you own the LLC." So there's an aspect of that that comes up. I think the way we've always looked at it is that efficiency is the most important part of what we do. The most efficient method to run the business and to get access to these assets is doing it in the method that we're doing it right now. So when we started the business in... Chris and Max and I have been talking about this for ten years. So we started the business officially in 2015/2016, let's say. But back then, trying to explain it to anybody, whether it was an investor or a potential user or anybody on the street or family members, the biggest criticism... We were doing like cars and it was, "Well, I can't drive them." And we were like, "Yeah. No, that makes complete sense. You're right, you can't drive them, but you also can't get access to the museum quality force that we're talking about right now. So if you have something that you can drive, this potentially lives as a compliment." And what we've seen happen over time is that so many of our investors, especially as we started to expand in 2017/2018 into sports memorabilia, there are the PSA 10 versions which are like the Gem Mint versions of a Michael Jordan rookie card. And now it's around the 400 or 500 thousand dollar asset, and it's the one of three hundred that exist. And then there's the PSA 1s and 2s and 3s and the lower quality versions or the different newer versions that people have way more access to. On eBay, you buy one for five or six hundred dollars and you put that in your stash and kind of hold on to it. So we've looked at the structure and the way that the conversation has changed. It started to move away from the actual method that we use to securitize and more towards the tangible versus intangible, the utility versus equity. And we've always looked at what we do as a way to say, "All right, having a piece is fantastic. I think everybody envisions the future is like less tangible things, potentially. But the most important heirloom pieces from these past generations and from the present that will be history in the future are the things that we want to give you access to. And the best quality versions, the rarest examples, the ones that maybe are out of reach, the museum quality stuff, so that you can have a piece in your portfolio that if you want to have the other piece, maybe it's a cheaper version or it's a slightly different version and have an actual tangible piece, that's available on a million other platforms. And we want to sort of make sure that you understand that what we're doing is about that true equity ownership in the best quality version." So that's been how the conversation's changed. But that's a little bit about how the user journey has changed a bit, too.

Phillip: [00:29:04] It kind of makes me think about the other things that happen as a result of this is like who's the next activist investor?

Rob: [00:29:13] Right.

Phillip: [00:29:13] The next Carl Icahn?

Rob: [00:29:16] Right. Yeah.

Phillip: [00:29:16] And who goes around and like sort of brute forces their way into a controlling majority stake through platforms like yours? Like you're going to have to solve for different problems that we've seen in the old world, but now being expressed in a new medium, which I find to be unbelievably fascinating, but will opine about that without you here. {laughter}

Rob: [00:29:37] Well we think about that internally, like our team is so smart, like our our finance team in particular, they cover so much of what potentially will happen in the future. And a lot of what we think about is that. This is the stock market on the chalkboard to a certain degree right now. And what we're trying to build is the next version of a marketplace that this generation Z and the next generation looks at as their version of Wall Street. That's why we named the company Rally Road early on, and everybody thought it was about cars. But like we came up with that where it's like the other Wall Street, it's a place where you and a bunch of friends who really care about something get together, Rally together, and make a difference and change the narration, change the way that it's been dictated to you, the way you should invest your money. So that's one hundred percent something we think about. And we see that changing dramatically over the next year or two for sure.

Brian: [00:30:23] You keep saying things like, you know, reaching new people and giving access, and I think there's something really interesting going on here. You mentioned the legal changes that made this possible in the past 18 months. I think in many ways, you're reaching a new generation of investors because of changes in the way that we're allowed to invest. The types of assets that people are able to touch now are completely different. Is this going to completely upend how the market that was pretty stable... Like we looked at some of these investments before... Art, classic cars, and pieces of history, classic pieces of history as like a very specific type of investment that only certain people could invest in. Therefore, those markets acted a certain way. And so as you're reaching new types of investors, what do you expect this to do to this market? Are we going to see the great Pokemon crash of 2008 or whatever it is?

Phillip: [00:31:48] It's not... It's more than Pokémon.

Brian: [00:31:50] That was a joke. Is there going to be like a big crash on the Declaration of Independence? Like we're going to see that...

Phillip: [00:32:01] The public market will decide for the first time, I think is you're saying.

Brian: [00:32:04] Yes. Exactly.

Phillip: [00:32:04] The public market will decide for the first time what the...

Brian: [00:32:07] The uneducated investor can make that purchase, or educated, however you want to look at it. Maybe all of your investors are extremely educated in what they're purchasing.

Phillip: [00:32:18] I'm sure that's what they tell all their LPs. How educated this new... {laughter} I mean, Rob, you were going to say Pokémon's a good example. You might be referencing a current event?

Rob: [00:32:35] No, I mean, you know what it is? I'll give an example. Like Pokémon for us is one that it changed our platform a bit. So when we ran the first Pokémon first edition set IPO this past summer, it was the 125 thousand dollar initial offering. It was something that, you know, it's sold out in a matter of seconds, basically. And the first few times that it changed up that we took it to the secondary market, you're seeing huge gains and big buyout offers. And it was something that hit on the zeitgeist and this moment that I think was so, so unique. It was the collecting thing. It was people who are kids in 1999, realizing so few of those exist. It was a nostalgia thing, which I think was so, so important, especially during COVID, where we reconnect with these moments that made you happy when you were a kid. I think all that together led to a rush into Pokémon that in certain pockets that you saw sort of pull back a little bit, it was sort of a little bit of too much of a rush in. And we, again, of the Pokémon first edition sets, we have two of them. There's eleven that are registered total. So regardless of the what happens in the future, there's real history around that. And we see a future in the history around that. We believe in each of these assets. So while you'll see sort of the ebb and flow of interest and liquidity in all these markets, the collectible markets as a whole has something that I think many of the modern markets don't, and that's that mix of passion and history. And when you think about this in terms, call it the real stock market. You think about what happens on the indices that we all know, on the Nasdaq, on the Dow and the S&P, the ones that are the benchmarks. Those are all, you know, a few thousand individual companies. They're ticker symbols for most people. The average lifespan of any company on any one of those exchanges is around fifteen years before it gets either delisted or it goes private or something happens and it changes the dynamic, and it's not the same ticker symbol anymore. You talk about the Declaration of Independence, you're talking about hundreds of years. And you think about, you know, we have dinosaur fossils on the platform. We're talking about sixty five million years. You're talking about ups and downs that happen for long enough, where the stuff that we bring to the platform, not only do we truly invest in it, but you can see the history, and you can see sort of what happened in not just 2008, in some cases, you can see what happened in the 30s and again in the 70s and then the 80s and all those sort of retracements and consolidation periods. So when I think about assets that are on our platform, whether they're new or old, it's always something that we truly believe and we see will be relevant and will be real history to associate with that passion that people have for it. So while there's risk in everything and we want everyone to read every disclaimer on Rally before making an investment, we truly do believe in these assets in the long term. We're trying to find the best quality assets to hopefully avoid some of that, some of the outflow that typically happens in sort of those pull back situations.

Brian: [00:35:17] So what I think I hear you saying in a very indirect way is that Pokémon is an acquisition strategy, basically, like it's clever merchandizing that will help you capture your future customer in different types of assets.

Rob: [00:35:31] That's a perfect way to put it. I mean, it's that's the user journey, too, is that you have two... You hit on two really important points there. One is that, you know, [00:35:40] from a franchise perspective, I believe Pokémon and Nintendo to be more relevant than Tesla. Tesla [00:35:47] right now, if you ask a kid on the street if they rather have...

Phillip: [00:35:51] There's a pull quote.

Brian: [00:35:51] Wow.

Phillip: [00:35:51] Sorry, go ahead.

Rob: [00:35:51] {laughter} I mean, it's one that I stand by. I've never said it before. So that's that's a new one.

Brian: [00:35:57] That's good.

Rob: [00:35:57] I'll be honest, like if you ask a kid on the street, would you rather have a million dollars or have like Elon Musk tweet about your business? They're going take the Elon Musk tweet. Like that's really what they're going to do because they look at that is massive amounts of influence. And that's true. But Tesla as a company and Tesla the car company, are not the same thing right now. Whereas when you think about like Nintendo and we have what I will say is one of the top five best examples of a graded Mario Brothers. And that's something that, you know, they're opening Mario Lands. And it's something that from the 80s to now is such a strong franchise. It'll always be top 10. It's the Disney of video games, of entertainment, outside of just that strong media presence that Disney has. They're a very close, I would say, top three, top four in terms of relevance. So when we think about the assets that are associated with that, to me it's more important to have one of those sort of the Genesis moment of a franchise that I truly do believe has staying power and will live forever, then it is to have stock in a company where I'm beholden to, you know, a car manufacturer and something that's a little bit disconnected from the CEO of that company right now. So that to me, is the way I think about it when I think about the same investor who has Tesla shares, also has that Mario Brother shares on Rally. And I think that makes a ton of sense for the next generation. Might not make sense for us, I think for a twenty five year old it makes a ton of sense.

Brian: [00:37:11] I think you're absolutely right about the power of Nintendo in this culture. I have four boys, and the Zelda franchise is like probably it's more powerful than anything Disney has ever put out for them.

Rob: [00:37:26] Yeah. I would agree. I would agree. It's tough. It's tough to quantify that. Because it's something that it's so ubiquitous. The idea of like video games. You think, Mario, when you think about like, you know, movies from childhood, you immediately think Disney. There are these brand names and these stamps that aren't just nostalgia because they're these massive multigenerational businesses. But buying just the stock only gets you access to the whole ecosystem when maybe you only want that one piece. Maybe you only want Mario. Maybe I only want, you know, Lion King, maybe you only want one piece of that. And that's kind of what we're trying to provide in the asset by asset investment.

Phillip: [00:38:04] Yeah, in the future, at some point when you're talking about these kinds of marks on the culture, and this could actually take us down a really interesting path, because I'd love to get your insight into this, Rob. The things you're talking about that have significance and have a large audience of people who may want to be investors of these kinds of assets because well, why? Because they all have a shared experience around it. It's an effect of the monoculture, effectively. Right? And in a world that's becoming ever more fractionalized, my experience of YouTube is very different to Brian Lange's experience of YouTube. I watch people sandblast rusty knives on YouTube endlessly.

Rob: [00:38:58] At two in the morning. Listen. Everyone's got their own thing. Don't let anyone tell you that's wrong, dude.

Phillip: [00:39:04] Exactly. I know freakin like. And power washing videos. I don't know why. All right. It's just a thing. But my experience is completely different to another's. And so in some ways you could say that my experience is fractionalized. I'm curious what the Rally of 30 years from now looks like when we have less monoculture? Certainly there are things that are cultural touchstones for everybody. COVID being a good example. I mean, maybe the COVID bat is on Rally in 30 years. Who knows? But there are certain obvious like big cultural moments. But the things that define media and entertainment, especially around sports and et cetera, I just think those things are evolving so quickly that the way that we experience them today and the way that you're acquiring a customer today is really actually heavily rooted in nostalgia. And I'm wondering what nostalgia looks like many, many years from now as our world is changing so dramatically and everyone's experience is unique to another. Any thoughts about that? Is that something that you ever think about?

Rob: [00:40:20] So I think about it all day, every day. And I'll tell you why. It's like for me as a collector, I've divested from most of the stuff that matches what's on Rally just to keep it above board as much as possible. And it's things that I've honestly cared about for a long time. But we, as Founders of this company are all collectors in our own right. And it came from our experiences. At the same time, so much of the stuff I collect are the things that are individual moments for me. So like I have an odd, a really oddball collection of things. And I have like I started investing in video games a long time ago and some of the stuff that looks and feels like Rally. But I also have like in our office, we have one of the Theranos centrifuge machines, because that to me was like, this really, really weird...

Brian: [00:41:02] Wow.

Phillip: [00:41:02] I have no idea what the value would be, but it was a few hundred bucks and it was from like a sale from a factory somewhere. There were two of them. And I know the other person who has the other one. I was like, "I'm definitely getting this." That to most people makes no sense. But it's something that to me is important. And because in tech, in the moments that we're in, the scandal that went with it, the idea of raising all this money... It was all these things that we were going through and watching at the same time happened like parallel paths of building Rally. So that was kind of an important moment. At the same time, now, like we've been locked in the house for so long, you know, me and Fitz, our Head of Ops and a few other people, the company like, you know, we bought a bunch of empty vials of Moderna Vaccine. It's just a weird thing that makes absolutely no sense to most people. But that to me is another, like, weird cultural moment. I'm like this going to be a weird thing to think about 10, 15, 20 years from now. So and that's like what my collection looks like. And I think for a lot of people on Rally, [00:41:49] we always call it kind of passion led investing. Who am I to tell anyone that their passion and the thing that makes them nostalgic now or potentially makes them nostalgic for the future, makes them feel good, is not something they should collect? So for us and we think about the future of Rally, my oddball collection now, it might be worth something in the future. I'm not in a position to make that determination. But a giant user base on Rally is. So for us giving access to the things you care about, letting you assign that value, doing more things that really bring it directly to the user base and let them kind of determine what the value actually is, I think is a big part of the future.  [00:42:23]So anything that has that dynamic where it's a group of people who care about something, it's an inability to access the best quality versions or the most expensive versions of it, and the want to have equity and kind of put your money where your mouth is, is a space that we want to be in. And that's tangibles, intangibles. It's stuff we're not even thinking about right now, because, again, nostalgia is this weird thing. It could be toxic if you think about it as the only method of connecting to something. But if you think about it as an entry lane for information, that's where it gets really interesting because, you just said it, like going down the rabbit hole on YouTube, it's no different than what everybody does right now when they want to learn something new or understand a space they'd never been in before. It's that new access to detailed information and now us giving access to the asset associated with it that I think has been a little bit the magic and the secret sauce of what we've done to this point.

Brian: [00:43:13] I think about what's happening right now in our culture and how everything is so impermanent. The Internet's changing and our culture's changing. And things are moving so fast and as you were talking, I started thinking about the Malcolm Gladwell smog episode on revisionist history and how people collect things and like why they collect things and what that means to them and they actually feel... Like for some people when they collect things, it's actually because they feel like if they don't, that they're like letting go of a piece of the past. I mean, so I think it's really actually what you said about it being healthy or unhealthy is actually I do think there is an element of that to collections. But for some of it, it actually helps people remember [00:44:06]. What's interesting about Rally is that I feel like this is a way to actually help write history now because we're actually going to be placing value on things that happened in the past in a more collective sense. So it's not just like individuals that had a certain asset class that could afford certain things that put value on what was important to people. It's now everyone can place importance on the past and give their voice to what was important to them and what made a difference to them. So we could actually see narratives change based off of how things are being valued on platforms like Rally. I think that's really fascinating. [00:44:49]

Rob: [00:44:50] Yeah, you just hit it on the head too. The assignment of value for so long has been done by a very small group. And that's part of like the what we've seen so much of early on is that people were immediately asking, can I contribute to my 401k to assets on Rally? And that was like a 2016 question that we didn't expect. And it's the way we build our product. A lot of it is based around the needs and the wants of our users, especially the earliest investors and people who came on early, but you just you hit on something where it's like who am I to tell anybody you should invest in this or plug it into a whole bucket of things and then put that little then have a salesman for a bank, sell that one little piece that goes as a line item and you don't really know what's inside of it? I think that that's what's changed so dramatically. I think that part of like the rush into NFTs, and not to make it a massive NFT conversation, but what we've seen happen and the skepticism that goes with it and the polarization that goes with it is more so because it's of out of the control of the people who really make the decisions at this point. So, like, yeah, is a sixty nine million dollar piece of digital art something that's really, really hard for me as someone who went to school for fine art to understand? Absolutely. But I also understand the want and the need for this new generation to be futurists and to be the first in and to make their own decisions. And if they make some mistakes right now in the way they spend their money, I'm not in a position to tell them that was wrong because it's all part of that learning experience. The problem and the difference is that for my generation, we had to learn it in 2009, losing every single dollar on the stocks that everybody said were safe and those were the ones to go into. And it's like, put your money there. And then, you know, everybody winds up selling at the bottom because they don't teach you what panic selling is. They don't teach you what the zoom out actually looks like and what the future looks like. They just tell you, put some money here and then we'll tell you what you can and can't do with it. I think that changed so dramatically for this new generation who is willing to take those risks to be first and learn it themselves without having to sort of stick to the three or four investment options that we had in 2009/2010.

Phillip: [00:46:52] With so little time left, my gosh, I would love to do a much longer conversation. You've been so great, Rob. I have this really interesting existential question for you, which is, as a company who deals in the fractionalization of things, how do you handle the fractionalization of the delivery of the systems that operate your business? So how do you think about hiring partners and agencies? How do you think about, like, you know, fractionalizing your talent? And are those things that certainly you have sort of the vestige of being a... Well, I'll just let you ask the question, I shouldn't lead you. How do you think about those sorts of things? Is there a culture to do everything from inside the business or do you find yourself reaching for agencies, consulting when appropriate?

Rob: [00:47:53] Yeah, I mean, it's a situation where it's impossible at this point. The amount of tools that exist for a business like ours that is a distributed system and has to touch so many different, you know, has to have somebody check marks along the way from a compliance standpoint, from a regulatory standpoint, it's almost impossible to take it from idea, to implementation, to release the way we did in a year and a half, or it was around 18 months, 19 months start to finish. That's looked at as a long time in tech and in startup. To have an idea and not have a product out for 18 months is almost laughable in certain situations. I think for us, the biggest sort of when we think about like the agencies we use, the people that we work with, we always want to bring in people to have the best and the most significant domain expertise, whether that's somebody who's acquiring an asset for us or legal and regulatory compliance. So getting the best, a) that meant a lot of upfront costs and one time fees that we were coming out of pocket for and that were insane at the time in 2016, especially on the legal side. But b) it means that, you know, you have to sacrifice a little bit of the control when it comes to the way that you're distributing your product and you have to be OK with that. So we have, you know, our CTO, Vinnie DiDonato, who's somebody who is like a good friend and he's somebody who really him and I speak the same language literally and figuratively on a lot of this stuff. We come from a generation where it's like, I don't want anyone building or designing or thinking about this product that I care so much about other than me. And I want to own that process start to finish. And I think that's one that, you know, as a thirty eight year old I had to break away from that at some point along the way, because the way to get product out and the way to get things done at this point is to have the people that are smarter than you do it, or a system that's able to scale quicker than you to do it. So anytime we can do that and do that within the regulatory construct that we have and do that effectively and responsibly, it's a conversation we want to have. And we've done that with content. We've done that with some of the internal systems that we use. We've done that with the way we distribute the app. You get left behind if you're not moving at a responsible but somewhat frantic pace in this space that we're in right now, especially as the world starts to understand what fractionalization really is. Well, that was an answer without answering.

Phillip: [00:50:02] Predictions on other things that can... No, it was an answer without answering, but I think it helps me understand the way that you're thinking about the balance between what is possible or capable from within your walls versus where you can reach to get some sort of acceleration or scale from without. If you were to just tell me and nobody would actually tell me, like I would believe you if you said the whole thing was running on like Google Sheets and Zapier and like a bunch of clever Stripe stuff because isn't that how everything runs?

Rob: [00:50:34] Yeah. Everybody has a really pretty front end, but that's a lot of back end. That's not ours, but that is a lot of the back end right now.

Phillip: [00:50:41] Every startup is that. What else can be fractionalized in the world that we haven't thought about yet, with a few minutes left?

Rob: [00:50:47] I think that there was a time in the 30s where, like, you know, stocks were deemed too risky for anyone's portfolio. And it was the idea that, like that was looked at the way crypto is now. You know what I mean? I think it took a long time to wrap their head around that. I think the same thing exists in fractionalization. Everybody early on would ask us, like, "Well, you're doing it here. The only place this ends up is you're fractionalizing people." And it sounds absurd when you say it like that. But the idea that, you know, there might be the ability to get some free cash flow and get something out of your future returns, that's something that's always interesting that we think about a decent amount. How we create that intangible, that feel that we have a tangible asset investing for intangible assets, really, it's a little bit of everything. Anything is only sort of limited the way that we think about, at least the way we think about investing in the future of this platform, it's limited by imagination more than it is the legal regulatory construct or the product, because anything can, in theory, be that LLC that's structured Reg A+ LLC that we use right now, as long as it has the same dynamics, and we put together the risk profile and the asset description and submit that to the SEC, they look at each individual asset as an asset, not as the thing or the real passion point that we do. And that's part, that's what their business is. That's how it's supposed to be. So for us, anything that has that huge enthusiast group, the people who really care about it, has gotten out of reach because of access or price, that's a space that we want to be in.

Phillip: [00:52:10] Whoo, that's some fire from Rob here in the last second. Hey, I look forward to a future where we're all buying, you know, Chernobyl spent fuel rods on Rally. Can't wait.

Rob: [00:52:21] Get out of our roadmap. How'd you know we bought that?

Phillip: [00:52:26] {laughter} What a pleasure to have you. Thank you for just being so real on the show and for going deep on some admittedly strange things. And if folks want to go get on Rally, how do they do it?

Rob: [00:52:39] Go to a, or we're @Rally on Instagram. And we've got the Declaration of Independence is cool, but there's some really, really cool stuff coming right after it. So stick around. We got some good stuff coming.

Phillip: [00:52:52] Awesome. Rob Petrozzo, thanks for joining us on Future Commerce.

Rob: [00:52:55] Thank you, guys.

Brian: [00:52:56] Thanks, Rob.

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