Co-founder of the rally in the record sale of “Super Mario Bros”, NFT, investing

If you’ve seen the recent $ 2 million sales record for a copy of Nintendo’s iconic 36-year-old “Super Mario Bros.” video game ⁠ – unopened since 1985 ⁠ – and immediately searched your childhood closets to look for similar vintage gold, you’re probably not alone.

Rally, the New York City-based start-up “investing in alternative assets” that sold the game, has that.

The company, which allows its online users to invest in rare physical collections in the same way that investors buy shares in a company, originally bought the copy of “Super Mario Bros.” of a private collector per $ 140,000 in April 2020. Four months later, the start-up hosted an initial public offering (IPO) for the game, which allowed 359 users to buy at $ 50 per share ⁠ – offsetting Rally with neat profits of $ 10,000.

Rally also held 30 shares for itself, according to company policy. And when an unidentified private collector offered to buy the game for $ 2 million earlier this month, the majority of the game’s shareholders (approximately 79%) voted in favor of the sale. Rally, which abstains from voting on sales proposals, notes that some of the users who bought shares of the game reported a return on their investments of more than 1,200% in less than a year.

Founded in 2016, Rally is probably now the increasingly popular market leader in rare collectibles as an investment in alternative assets. According to research firm PrivCo, the 33-employee company earned an estimated $ 6 million in revenue last year, while its number of new users has doubled every month since the pandemic hit. The company currently has more than 300,000 users, with an average age of about 29 years, investing in more than 300 items, which have an estimated value of more than $ 35 million.

With plans to roughly double its number of assets (and, consequently, the valuation of those assets) over the next year, Rally is betting that investors ’fervor for these alternative assets will be here. Rally investors themselves seem to feel the same way: in May, the start-up secured a $ 30 million Series B fundraiser led by venture capital firm Accel Partners and a debt facility of $ 50 million from the Upper90 Capital hybrid fund, which brought its estimated valuation to $ 150 million. , according to PrivCo.

In all, the app has raised more than $ 100 million over the past five years, from investors, including Reddit co-founder Alexis Ohanian, and rapper Nas.

But long before the company’s three co-founders held a record video game sale, they fought for regulatory bureaucracy and a decidedly lukewarm reception from investors. And while the Rally could be in the headlines now, the start-up is already facing tougher competition than ever.

Public interest in investing in alternative assets has increased since the success of the pandemic, due to the uncertainty and volatility of traditional markets. Predictably, this has been an advantage for emerging companies like Rally and competitors like Yieldstreet, where users invest in asset portfolios such as real estate, art and commercial loans.

Other competitors include specialized applications such as Fundrise (fractional real estate investment), Otis (collecting and art) and Alt (sports trading cards). Yieldstreet has grown especially in recent years, with revenues estimated at $ 67 million in 2020, according to Privco.

But the idea of ​​Rally predates the pandemic. It came from co-founder and president Christopher Bruno, who couldn’t decide between buying a house or the car of his dreams (a 1994 Porsche 911 Turbo Speedster “Flat-Nose”) in the early 2000s. When Bruno communicated to his parents his dilemma, they immediately tried to convince him that buying real estate was a smarter move. Bruno bought the house but, for the next decade, its value remained relatively flat.

And when similar car models were sold for more than a million dollars in 2016, Bruno knew he had made a financial mistake.

By then, he already had ropes in two old friends, product designer Rob Petrozzo and banker Max Niederste-Ostholt, to brainstorm an easier way to invest in active collectors like classic cars. without draining life savings. In addition to traditional collectibles, Rally also sells unique items from – from the 1776 Declaration of Independence to the fossilized skull of a 65-million-year-old Triceratops – and luxury collectibles like Hermes Birkin vintage Rolex bags and watches.

Even the company is entering the world of NFTs, or non-expendable tokens, with a pixelated avatar “CryptoPunks” that will be released next month. While Rally’s avatar will be valued at $ 72,000 for its IPO, a particularly rare CryptoPunk was sold for more than $ 11.7 million at an auction in January.

But the three men still had a long, complicated road ahead of them before listing their first collectible ⁠ — a 1977 Lotus Esprit sports car that now rallies worth more than $ 130,000 — to the 2017 Rally app. For two years, they essentially started the company, creating a “small beta” version of the app while working with the U.S. Securities and Exchange Commission (SEC) to get the company’s collectibles registered as securities. officers. Currently, all shares that users buy in a rally collectible through an “IPO” are regulated by the SEC.

During this time, the co-founders experienced great rejection from investors. “I think we have 300 or 400 no [in] that first year, ”says Petrozzo, now the company’s product director. Petrozzo was finally lucky enough to email Howard Lindzon, managing partner of venture capital firm Social Leverage and and first investor at Robinhood, another fractional investment app.

Months later, Social Leverage started the session as the first major investor in Rally, paving the way for other investors to join. Lindzon says he remembers being interested in Rally “right away.”

“I really believed in asset splitting and [Rally was] just do it for something unique, “says Lindzon, referring to the infrequent collecting market. The decision to seek and obtain SEC approval, he adds, gave the company a substantial amount of legitimacy especially , especially in a small market that has rarely even been studied by market researchers or analysts.

This uniqueness, says Petrozzo, is the competitive advantage of the Rally. “The reason why coming to Rally makes sense for many [our users] is that there is an element of authenticity, “says Petrozzo, who personally collects art, vintage trading cards, video games and more.” We are them. We created this platform as collectors. “

Maybe that’s why Petrozzo wasn’t surprised when the August 2020 Rally went public for the sealed copy of “Super Mario Bros.” exhausted in an instant. “It was about two minutes, starting to finish,” he says.

Rally’s five-person acquisition team is watching the vintage games market closely, which Petrozzo says is motivated by nostalgia: people want to invest in rare copies of classic video games they might have played when they were kids. Even before the album “Super Mario Bros.” sale, a sealed copy of the 1987 game “Legend of Zelda” sold for $ 870,000 in July and a 1996 copy of “Super Mario 64” went on auction for a few days for $ 1.56 million.

They are not just video games. The acquisition team conducts extensive product and market research on “literally thousands of assets a week,” says Petrozzo, who adds that Rally can only acquire three or four of these items.

Rarity is key, he points out: the record copy of “Super Mario Bros.” it was potentially “one of the first three” versions of the popular game that is still sealed and in perfect condition today. Petrozzo also says the company could soon add new asset classes, from music rights and Internet domain names to physical real estate.

Rally’s biggest hurdle for a Robinhood-like increase: interest in these assets or any of the assets already listed on the Rally platform may diminish over time. Lindzon suggests that the company could withstand this storm, because if people lose interest in one type of collecting, they will probably gain interest in another type. According to him, Rally’s business model focuses on an emotional connection: allowing people to “own things that mean something to them.”