This Rally Review will help you learn more about Rally's investment offerings, including how the alternative investments on Rally are structured, and what your potential returns might be. You can read more about the criteria we use to review investment platforms here.
Rally is a website and mobile app for buying and selling fractional ownership shares in cars, wine, comics, rare books, and other collectibles (including NFTs). Rally is based in New York, and was founded by Christopher Bruno and Max Niederste-Ostholt. Rally offers their investments through SEC Reg A+
Types of investments Rally offers
When you invest on Rally, you’re investing in fractional ownership of a specific collectible. Rally offers a diverse range of collectibles, from exotic cars to fine wine and whiskey to rare books to baseball cards to NFTs. According to Rally they intend to hold the items for an extended period of time and then resell at a profit, though they also offer their own secondary market where you can buy and sell individual shares during limited trading windows.
Rally also operates a gallery in New York City, and investors may have the opportunity to view the assets they’ve invested in at the gallery.
What do you get when investing with Rally?
When you invest with Rally, you receive a membership interest in an LLC, which is what actually owns the underlying collectible. Prospective investors should note that the LLC owns multiple items (using a separate sub-series for each collectible), rather than the more typical arrangement of a separate LLC (or other special-purpose entity) for each offering. This is becoming a common structure for Reg A+ offerings, but may be unfamiliar to some investors. Investors should review the offering documents in full to be sure they understand how the offering they’re investing in relates to other items (series’) owned by the LLC. Each series is treated as its own separate legal entity under Delaware law, similar to a company subsidiary.
Although Rally does offer a secondary market trading platform for investors to resell their shares, there is a 90-day lockup period from the initial offering date, and after that trading is only available for 1-day windows approximately every 90 days.
How does Rally make money?
There are no direct fees to use Rally or invest in collectibles on the platform. Rally receives a “sourcing fee” – typically around 5% of purchase price of the asset – which is rolled into the total offering amount (so as a simplified example, if Rally buys a collectible for $1000, they would raise $1050 from investors and retain $50 as their sourcing fee). There is also a 1% fee paid to the Broker-Dealer administering the offering.
If there is any free cash flow associated with income from an asset (for example, admission fees charged to view an item), Rally retains 50% of that free cash flow and distributes the other 50% to investors in the form of dividends.
Rally also retains a minimum of 1% of the shares of all offerings (and in some cases significantly more).
Potential returns and cashflow
The primary gains from an investment on Rally are expected from sale of the asset, following an extended planned hold time. Rally provides some historical and benchmark data for similar collectibles, but the unique nature of many of the assets may make it difficult to reliably project expected returns.
Prospective investors should also note that the sourcing fee and ongoing operating expenses for the asset (eg storage, maintenance, insurance) will reduce the effective return.
For example, Rally purchased a 2000 Ford Mustang Cobra R for $43,000 and later sold it for $60,000, for a total appreciation of nearly 40%. However, the total initial offering amount (including fees) was $49,500, and the total distribution to investors after expenses was $58,240, for a total return to investors of 17%.
Prospective investors should be sure to research the specific asset they’re investing in to understand the likely return potential.
While cash-flow isn’t explicitly part of an investment with Rally, they do indicate that if there is an opportunity to generate revenue from a particular asset (for example, through a gallery showing) that 50% of any free cash flow generated will be distributed to shareholders (with Rally retaining the other 50%).
Breadth of offerings on Rally
The total number of collectibles listed on the Rally platform is quite large, though there’s typically only a small number of offerings active at any given time.
In most of the categories available, there are some initial offerings available, as well as some secondary offerings. For most assets, Rally opens up a brief (1-day) trading window every 90 days for investors to buy and sell shares from previous offerings. Prospective investors can view all the current Bid and Ask prices.
Regulatory framework and due diligence expectations
Investments on Rally are offered through SEC Regulation A+, “Tier 2”. Reg A+ offerings must be registered with the SEC, including detailed offering circulars, and offering firms are subject to a number of financial disclosure requirements.