Rares, an alternative asset marketplace that allows users to buy fractional shares in high-end sneakers, finally introduced secondary trading Tuesday.
When Gerome Sapp first launched Rares last year, the former NFL safety presented the platform as a way for sneaker lovers to “invest in the culture.” Secondary trading now allows those sneakerheads to sell their shares and potentially profit off their investment.
“Traditionally a big issue with alternative investments is the liquidity of the investment,” Sapp told Sourcing Journal. “That is how soon can you exit your position, or get into a new position for an [initial public offering] you missed. So, it has always been important and critical for us to have this as a top priority in creating a true marketplace for alternative investments.”
The first listing to open for secondary trading represents two pairs of Air Force 1 sneakers. Created by Jay-Z for the International Basketball Federation (FIBA) World Basketball Festival in 2010, the Air Force 1 HOV “All Black Everything” collection consisted of just 10 pairs, two for each of the five countries that took part in the event.
Rares bought two of these pairs—one each of the Brazil and China designs—and combined them in its debut listing last May. The initial offering consisted of 2,000 $13 shares for a total valuation of $26,000. Investors were required to buy at least three shares.
Since then, Rares has launched six so-called IPOs. Most represent just one pair of shoes and are valued in the tens of thousands of dollars. The most notable exception is a pair of Nike Air Yeezy 1 prototype sneakers that were worn by Ye, the artist commonly known as Kanye West, to the 50th Annual Grammy Awards in 2008. The platform bought the pair from a Sotheby’s auction for $1.8 million last year. Its November IPO consisted of 72,000 $25 shares.
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The Jay Z-designed Air Force 1s are the only listing to fully sell out so far. As others follow suit, they too will enter the secondary market, Sapp said. The process, he noted, will not be automatic. Once an IPO closes, Rares will have a “holding period,” make an announcement to its users and then open the listing for secondary trading. “This may change in the future but for right now we will not automatically push IPOs into secondary trading,” Sapp added. The platform will not charge fees for buying and selling shares on the secondary market.
In its press release, Rares described the launch of secondary trading as “the first of many announcements and platform additions to come” this year.
Rares is regulated by the U.S. Securities & Exchange Commission (SEC), operating as a Regulation A company. It must submit every shoe it IPOs for pre-approval and make those documents publicly available, Sapp said. “The process is not easy but it was important for our company vision to do it,” he added. A single individual can only own 19.99 percent of a shoe on Rares, so no one person can claim majority ownership.
“If someone wanted to outright own the shoe, they’d have to make a buyout offer, at which point we factor in market dynamics along with input from other existing shareholders, to decide if we want to sell,” Sapp said. “Alternatively, when we think the time is right based on multiple factors we can put the shoe up for auction with our partners and liquidate the shoe that way.”
Though the former NFL player declined to offer specific numbers on how much Rares’ typical user invests, he said user growth “is right on track” with initial projections. Investments per user range from $25 to “well over $1,000,” he added, with the average “in line with our initial expectations to reach a retail investor who’s spending what they’d spend on a pair of shoes, as an investment instead.”
“We see Rares as a go-to place for novice and experienced alternative asset investors to find the rarest sneakers and an exciting community of like-minded sneaker enthusiasts,” Sapp said. “Increasing the liquidity of the asset helps users invest more similarly to traditional stocks and the stock market, allowing users more flexibility and options for entering or exiting an investment.”