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Fading to a Fraction: Big Updates in the Fractional Collectibles Space

Fading to a Fraction: Big Updates in the Fractional Collectibles Space
September 7, 2023
Dylan Dittrich

Photo: Collectable

This article was featured in our newsletter, Alts & Ends. Click here to subscribe for free and receive the best collectible market insights straight to your inbox on a weekly basis!

According to an SEC filing made last week, fractional sports collectibles marketplace Collectable is set to be sold for $1,353,000 after transaction expenses.

While details on the transaction are scant, the filing notes it was sold to Fractional Ownership Holdings, LLC, with the company's full board of directors resigning and being replaced by a sole director, Philip Neuman. The acquisition has no direct impact on the underlying series offerings at this time. However, as series shareholders know, ownership of the series "Manager," in this case CS Asset Manager, LLC, can have a significant impact on outcomes.

The acquisition follows the steady stream of Collectable offerings to auction in the midst of a market downturn. At present, approximately 110 assets remain in trading on the platform, net of those that have been halted for sale, so future plans will remain of interest to still-invested shareholders. The outcome for the parent company is demonstrative of the roller coaster in fractional over the past three years.

Armed with significant venture capital and emboldened by incredible collectibles interest in late 2020 and early 2021, fractional platforms scaled their offerings quickly, outpacing the investor interest that would ultimately be sustained as the market turned. In May of 2021, Collectable raised $5.5 million as part of a Series A. In May of that same year, Rally raised $30 million in a Series B funding round, while also securing a $50 million debt facility to assist in asset acquisition for fractional offerings.

It's hard to imagine now, but at a time, activity was bustling enough where it could've merited all three features in an edition of Alts & Ends, and that's more or less what it did in this newsletter's fractionally-focused predecessor. However, with an abundance of assets offered at or near the height of the collectibles market boom, eventual losses made investor interest challenging for fractional platforms to sustain. Moreover, as platforms rolled out more sophisticated and frequent means of secondary market trading, the path to the exits beckoned. Absent sufficient liquidity from willing buyers in a more dour market environment, investor selling begat more losses, which in turn begat more selling.

Towards the beginning of the 2022 exodus, in March of that year, Otis was acquired by Public, having previously raised $16.5 million in total. Unconfirmed estimates for the exit suggest a mid-eight-digit outcome. Viewed against venture money raised, it's perhaps not staggering. Viewed against the sum paid for a rival platform last week, it's pretty darn staggering.

Since the acquisition, Public has also exited several fractional, collectible assets, with no recent offerings in the space. In a choppier market, the platform's focus has been directed elsewhere, particularly the opportunity to introduce investors to T-bills offering north of 4 and even 5%. Suffice it to say, it's a very different investing environment today than it was in 2020 and 2021.

Similarly, Rally hasn't launched a new collectible IPO in 2023, leaving many to wonder if we've seen the end of at least the first generation of fractional collectibles. Trading activity has lulled; even in the most popular assets - like the $3 million Declaration of Independence - volume is limited.

The platform has offered a car in 2023: the Unimog in collaboration with Daniel Arsham. Yesterday, an interesting announcement indicated more could be on their way. duPont REGISTRY announced a joint venture with Rally in which it will offer fractional shares in premium automobiles, leveraging Rally's infrastructure while also displaying the cars on its site. Cars were at Rally's genesis (hence the name), and many car investors on the platform knew a Rally that existed before daily trading, NFTs, and the events of the last few years. Whether a new audience can find similar enthusiasm for the opportunity to own shares in these luxury vehicles remains to be seen.

Rally's own announcement suggests they'll pursue this type of partnership across other asset classes, ideally partnering with best-in-class brands to bring new assets to existing users and bring large audiences to the existing platform. These partnerships may be a necessity to reignite the flame of fractional interest that has faded to a dim flicker in the legacy audience.

In any case, it seems that this particular chapter in fractional collectibles is reaching its end. While there could surely be more chapters written, they would have to rise from the learnings of the early 2020s for platforms, investors, and constituents alike.

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Disclaimer: You understand that by reading Altan Insights, you are not receiving financial advice. No content published here constitutes a recommendation that any particular security, transaction, or investment strategy is suitable for any specific person. You further understand that the author(s) are not advising you personally concerning the nature, potential, value or suitability of any particular security, transaction, or investment strategy. You alone are solely responsible for determining whether an investment, security or strategy, or any other product or service, is appropriate or suitable for you based on your investment objectives and personal financial situation. Please speak with a financial advisor to understand if the risks inherent in trading are appropriate for you. Trade at your own risk.

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