Money has always been the gatekeeper of opportunities.
Take investing for instance. Not long ago, if you were a retail investor, you couldn’t hold private assets available only to investors who were deemed as “accredited”. Money equaled exclusivity. Therefore, money was the barrier to entry.
Recently, the SEC released new guidelines for Reg A+ and Reg D, allowing a broader set of retail investors to gain access to these typically gated assets.
This change was important for both retail consumers wanting access to investments with more diversity and higher returns, as well as asset holders looking to tap into new sources of capital.
It is also important to the history of investing – it changes the rules positively for the majority, not just the wealthy minority.
But the SEC isn’t the only governing factor over who can play the game and how the game is played. Technology has an even greater role in this evolution.
The combination of technology and lawmakers working in parallel has created opportunities that can no longer be restricted by the balance of your bank account.
When Public.com acquired Otis, this new investment freedom was liberated. The acquisition accelerated the availability of “fractional ownership” to their platform and kicked off the viability of this newly formed asset class.
Fractional ownership is a prime example of how Fintech is innovating the financial system and can serve previously underrepresented populations.
Let’s take a closer look.
What is Fractional Ownership?
Say there’s an asset, like a second home, that you want to purchase but can’t afford on your own. So you go to a few of your friends and agree to each pay a percentage of the cost of the property. No one has to front all the money, but everyone reaps the benefits.
That’s an example of fractional ownership.
Now do this with hundreds of investors, in a matter of minutes.
The new fractional ownership model is when multiple investors (who don’t know one another) pool their money together to purchase an asset. The clunky, up front costs are gone and in turn, they all gain exposure to the potential of the asset (think appreciation in the rental property example).
Additionally, the asset could provide passive income, distributions, etc. without the initial large check that typically prices the majority of retail investors out of the market.
On Rally Rd.’s marketplace you can trade shares in individual collector items - say, a ticket stub from Elvis Presley’s last concert, or a Triceratops Prorsus skull.
Definitely cool, but what does that mean as an investment tool and how does this model expand to other asset classes?
Investing in Fractional Ownership
Fractional ownership is no longer just for collector items.
At Fiat Ventures, we have a front row seat to how this market is evolving through one of our own portfolio companies, Here, which we were fortunate to lead their latest Seed round.
Here offers fractional ownership investing in vacation rentals (similar to our previous example). Vacation rentals become dividend-paying assets, from as little as $1.00 per share, that everyone can benefit from.
Investors can curate their exposure to different rental markets (i.e. Florida Gulf Coast vs. Big Bear, California) and build a diversified portfolio within the broader vacation rental market.
Here manages the property, you take home the rental income and property appreciation over time.
While rising interest rates and an unpredictable stock market continue to raise the barriers for people taking on the full investment themselves, Here is seeing massive demand growth for fractional ownership through their platform.
Case in point: Here’s latest listing, Enchantment, sold out in the first 30 minutes of launching on their platform.
Another example of this evolution in fractional ownership we are seeing is with another portfolio company of ours, Vint. Vint specializes in providing access to collections of fine wine and fine spirits for as little as $100 per share.
Yes, 38 year old Japanese Whiskey, or cases of the world’s most sought-after wines can be used for more than wetting your whistle! The fine wine and spirits subcategory is one with historically strong returns and low volatility (see the Liv-ex chart below), but traditionally, a very hefty price tag and little diversification.
Vint’s approach to fractional ownership is changing that.
Vint not only provides access to the fine wine and spirits market, but they have also created access to wine futures, a product previously only available to wine producers. The futures products allow investors access to discounted prices as the wines mature in the bottle. It also demonstrates the additional investment products that can be created as fractionalized shares become more readily available.
The wine futures market is practically non-existent in the U.S, so this is an exciting move for both retail and emerging institutional investors. More than that, it’s also supporting suppliers by helping to solve the age-old winemaking issues of having to wait two years to generate cash flow for the wines.
These companies are taking traditional markets (fine wine and vacation rental property), modernizing them and creating access that is affordable for the everyday investor.
Moving forward with fractional ownership
The fractional ownership model provides space for creativity and collaboration. When you combine this with alternative assets, allowing people to invest in what they understand, you instill confidence in the ability to control your own financial future.
Between platforms like Vint and Here, the fractional ownership model is creating credible investment tools for investors to diversify their portfolio in modern ways.
Our team at Fiat Ventures and Fiat Growth believes in disrupting the traditional financial system with innovative products, particularly when it comes to creating a more inclusive system. Not only is this the right thing to do, but it also expands the total available market considerably as new investors enter the fold.
Moving forward we will continue to invest in the future of fractional ownership and adjacent verticals.
If you’re interested in following our investment journey, sign up for our newsletter by reaching out to our Vice President, Caitlin Keep (email@example.com)