Stefan von Imhof is the co-founder of alts.co, and is an investor in “modern” alternatives. Stefan talks about investing in newer assets like collectibles, cultural assets, and music rights. Without a central, authoritative source for valuations, Stefan discusses how to navigate the wild west of these new asset classes – where the opportunity lies, and what landmines to look out for when it comes to investing. For many investors this is a new area, and we dissect the benefits and drawbacks.
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Watch the episode here
Listen to the podcast here
Collectibles, Comic Books & Music Royalties – How To Evaluate Modern Alternatives With Stefan von Imhof
We have got a fun episode now with Stefan von Imhof. He is the Cofounder of Alts.co. You may have seen his newsletter around. They started this newsletter educating about alternative assets and not just any alternative assets, but what he calls modern alternatives.
We normally focus on the big three, real estate, hedge funds, and private equity, but this is getting into collectibles like baseball cards, music streaming rights, farmland, and some unique asset classes that we haven’t touched on a lot. We are excited to dive in here. You are going to love hearing about these new assets.
It is an early-stage inning. We are not promoting anything and saying, “This is what you should be investing in.” It is interesting to see the evolution of this space, and as always, I want to give a disclaimer. Because we bring somebody on the show, it does not mean we are recommending them as an investment. You got to do your own due diligence if you are interested. It is something that is interesting you are going to enjoy.
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We are joined by Stefan von Imhof. He is the Cofounder of Alts.co, which, as he described in our conversation beforehand, is investing in modern alternatives, and we are going to get into what that means. I’m excited to have you on, Stefan.
It is great to be here.
Talk a little bit about your story. You live in Australia, and you are in Portugal now, which is pretty cool, but talk about how did you get into this space? Tell your background a little bit.
I started the Alts newsletter back in 2020. It was a lockdown child. It was nothing better to do for several months straight in Melbourne, Australia, during the lockdown. I started writing about what I loved and what I knew. At the time, I was the head of product at Flippa.com, which I think you guys know is a marketplace for buying and selling businesses, online businesses, eCommerce, micro SaaS, that thing. At Flippa, we saw that world as alternative investing. It is investing in cashflowing content websites and investing in micro SaaS businesses. It is active investing, but still to this day, one of the most compelling alternative investment classes out there.
It is buying an online business.
Buying an online business and buying a passive content site. There is a lot to be said about it. I started writing about that world. Around the same time, I was starting this newsletter. It was focused on that side of alternative investing. There was a gentleman named Wyatt, who is now my cofounder. He lives in Spain. He and I never met in person, but he had a similar newsletter, and he was talking about alternative investing from a different angle.
He was coming at it from the world of what was happening in fractional investing, collectibles, culture, and sports memorabilia. That is a big growing alternative investment class, as I’m sure you guys have heard. I didn’t have the expertise in that area. Wyatt did. He had his newsletter, I had my newsletter, and it was clear we were butting heads a little bit, but we also got along well. I rang him up one day, and I was like, “I don’t know if you want to join forces. I don’t want to compete.” That was pretty much it. We have been working together ever since. We have been building Alts together ever since.
One of the things I love, I’m on your newsletter, and that is how we found you, is you do these deep dives into these different alternative investments. One of the reasons I wanted to bring you on is you are doing things that aren’t the traditional alternatives that we and our readers are probably more familiar with, which I would classify as real estate, hedge funds, private equity, the big three. What you are focusing on are more the collectibles, like you said, the memorabilia, doing different culture-driven investments. Talk a little bit about that space. It is in a budding space. People have heard about NFTs and cryptocurrencies. They have jumped on the scene.
What is the landscape? What is the biggest of these modern alternatives? What are the three biggies in modern alternatives?
Collectibles and culture are the biggest now. There is a groundswell of interest and folks pouring into cultural assets and sports memorabilia. It is driven by sports cards, game-worn jerseys, and all sorts of sports memorabilia. That is driving a lot of the industry forward. There is a ton of other stuff happening. There is stuff happening in comic books and video games. It all has to do with grading.
Anyone can buy an asset and call it an alternative asset, but unless it is graded and graded by a recognized body, it doesn’t have a whole lot of value, and there is no way to ascertain the value. What is happening is there are all of these graded pieces coming online, and they are being distributed through these new fractional investing platforms. You may be familiar with some of them. Some of them include Rally Rd. It is a big one. There was a company called Otis that was bought by Public.com. There is a company called Collectible. These are the big companies coming up through the fractional space. They are buying these assets.
You buy a fraction of a rare comic book.
They micro IPO, these comic books, video games, sports memorabilia, or cards, and this is all fine and dandy. What we realized is everyone is excited about this space because you can buy a piece of a Hank Aaron card. That is awesome for a collector. That is huge. The problem is no one was doing the hard work to value that stuff because there is a dinosaur skeleton for sale that you can buy 100th of a 100%. It doesn’t mean it is valued properly.
If you do the hard work, you can find out that there is a way to find comps. That is how we got our start. We started doing the hard work of comp analysis that no one else was doing. That is how everything got started. Now we are able to see which assets are a good deal, undervalued, or overvalued, and which ones you should buy at IPO or hold. It is like stocks, real estate, and anything else.
[bctt tweet=”Nostalgia is powerful. It is weird on one level to invest in the past because it already happened and it doesn’t move society forward, but it is powerful stuff.” via=”no”]
To break it down, the biggest part of this space is what you call cultural collectibles. It is sports memorabilia, etc. That is a multi-billion dollar industry for sure.
It is hard to draw the line, but there is a lot of money slashing out there.
What is driving a lot of that? It seems like there are some general interests. Alternative investments seem to appeal more to the younger generations anyway, who are looking for something new or interesting. To your point, it seemed like there is some level of democratization and access to own something that previously was not fractionalized, or you couldn’t own a piece of in these platforms that allow you to trade that with some level of confidence. You are not going to be scammed. Is that what is driving more of this flow of capital into these spaces or a combination? What are you seeing at the high level?
There are a lot of trends converging at once. It is a fascinating moment for investing. Maybe we will talk about some of those trends a little bit. The biggest one is around the rise of the retail investor. This is probably something you guys have covered a ton, but several years ago, what did you do with your extra cash to invest? You gave it to a financial advisor.
You have a wealth front and betterment that comes along, and they are like, “You don’t need a financial advisor. It is expensive.” They were like, “Give your money to us and our robo advisors, and we will invest for you.” Robin Hood came along, and he was like, “You don’t want to do the robo advisor thing. You can invest yourself through our app. You can buy crypto, stocks, bonds, real estate, whatever you want.” The point is they put the power in the hands of the investors. That is a big trend because now you have got a whole generation that is growing up with this idea that they can self-direct their investment. That is trend number one.
Number two is there is a big nostalgia play here. Nostalgia is powerful. It is weird on one level to invest in the past because it already happened, and it doesn’t move society forward, but it is powerful stuff. For a certain demographic, maybe the Millennial, Gen X, and folks that grew up in the ‘80s collecting baseball cards, video games, and comic books.
The fact that they can buy blue-chip assets now, even if it is a fraction. That pulls at people’s heartstrings. Emotion plays a big part in things. There are other trends like the actions of the Fed and post COVID. I don’t have to get into all that. Those two trends are the big ones. If combined together, it is powerful stuff.
I’m trying to get my head around fractional ownership of a baseball card. You don’t have the joy of holding something in your hand and showing it off to your buddies after you pass the round of beers around. That would seem a big loss. What if you’re not in control of it? If it gets stolen or something. I imagine there are manager fees, costs, and fees layered on. Why doesn’t it suck?
In terms of not being able to touch the asset, there is something to be said about that. The generations that are coming up in the world and investing are digital natives. I don’t think they care as much. NFTs are a perfect example of this. We can talk all day long about NFT. That is a tangent we may not go down. It is controversial. There is a whole lot to say. The point is, what is an NFT? It is digital ownership. That is the tip of the iceberg.
It is not like digital ownership. It is a digital asset.
They don’t need to physically hold assets like previous generations would. I feel what you are saying. I don’t think it is as big of a deal.
What about the fees? Somebody vaults this. I assume there are vault fees and management fees. Is this a 2 and 20 thing? How does it typically work?
This goes beyond collectibles. There are different markets this happens, and fractionalization happens. It happens in farmland and franchises, but there are different models for each business. Generally speaking, a platform will acquire, usually in full, from an owner. They may get it from an auction or private sale. Most of the stuff happens through private sales, but they buy the asset either half of it, and the seller retains 50% equity, or they buy it out.
The platform owns most likely a majority of an asset. What the platform then does is they use a Reg A. I don’t know if you have heard of Reg A or Regulation A+. It is a Reg A offering on each asset there. It is a micro IPO. It is the way to think about it. They file the paperwork with the FCC that has to be publicly available, and this is where we get a lot of our information from as far as what they paid, when they bought it, and where they bought it from.
Is there a standard fee structure because you can do anything? You can have fees of 89% if you want it and do whatever you want with a Regulation A+.
The fees vary from platform to platform. A lot of the platforms, because there is so much interest in the space, are abstracting away the fees for the most part. What they will do is they value that asset at a certain amount. They will value it 20% more than they bought it or so. That is how they make their money, but this isn’t a hard and fast rule. There are all sorts of creative stuff happening with different companies in the way they handle how they make money.
There is no third-party valuation, no market, or trading, and it is not a transparent structure necessarily. Those are all red flags.
This is where we come in because we add that transparency to the market. What do you need to make a good market? You need transparency and liquidity. The first is being solved by, I don’t mean to promote ourselves too much, but by us and by a few other companies that are doing that.
You are creating the market.
The liquidity is a whole other story. What these platforms are doing now is they are micro IPOing these assets, but now they have opened up trading windows. They are not 24/7 trading windows. They are not even full equity market trading windows, but they are trading windows where people can buy and sell shares. There is a current bid-ask spread like stocks. It is like anything else. The markets are becoming more liquid. I wouldn’t say it is an issue. It depends on the platform and assets sometimes. I know that is a cliche to say, but it is still early days.
Are these assets insured?
They are insured, vaulted, and stored. The platform usually takes care of all that.
You got to have a lot of trust in your operator. This is having a private stock market. Manufacturing stock and creating his own market. You got to have a lot of clauses and something that is not regulated. It would be a great place to dive in because, for a lot of our readers, this might be something that is newer to them. This sounds super risky. It is early innings, which it is.
There can be a lot of opportunities, but there can also be some big landmines as you are navigating it. We are seeing this next-generation investing in the meme stock, crypto, and these new assets. It is volatile, and it is hard to see what intrinsic value is. From your perspective, as a higher level in this space, what are you seeing? What are the places to look out for? Where are you seeing the opportunities, but where are you seeing the landmines for people?
As a financial investor, where are you putting your money, and where do you see the real opportunity and the real value? What are the pitfalls or things you got to out for?
You guys mentioned a few different items. I wouldn’t worry so much about the trust of the platform side. These platforms are highly scrutinized now. I wouldn’t worry about that now. One of the risks is on buying an overvalued asset or buying even a fraction of an overvalued asset, which can happen.
[bctt tweet=”The best deals are the ones that don’t ever make it as platforms. You got to go out, hustle, and find them yourself.” via=”no”]
It is a way to hide fees.
We help prevent that. We do that hard work of comp analysis. We have a whole database, and we know what an asset should be valued at compared to the benchmarks. We have created those benchmarks now.
You are creating some party valuations, which is key. I bought a bike online. It was an awesome bike. I saw it was a Reg A+. They did a Reg A+ stock offering. You could buy a fraction of the company that made this. The company is barely profitable, and they are selling their shares of a company at something like a $300 million valuation, which is insanity, and they sold a $500,000 worth of stock. They are cheering and pat themselves on the back. I’m like, “Great for you but bad for all your investors.” It seems this is ripe for that. You are creating a market. You are doing third-party valuation and pricing of these assets.
There is also a lot of opportunity on the other side of the coin. There is a lot of stuff that is undervalued. There are assets that come online, and we can’t believe how cheap they are compared to what they should be selling for. As time goes on, those arbitrage opportunities slip away. We have another few years left of some good arbitrage opportunities. You better believe we are going to look for them, and we are going to find them in the meantime because it is still out there.
Where do you think the real opportunity is? We have hit some of the pitfalls. You are putting your own money to work and your mom’s money. Where are you putting that?
There are some markets that I love. The ones that I love tend to be the ones that produce cashflowing assets. Let’s take a step back. A lot of the collectibles and a lot of that stuff is great. A lot of it is getting into greater fool theory territory. I don’t think it is that big of a deal. It is not like NFTs, which are 100% greater fool theorists than ourselves.
What that means is you have to have a buyer who is a greater fool than you to pay a higher price for something that has questionable intrinsic value.
Some NFT projects have intrinsic value. They have utility. There is value there. Maybe we can do that later.
You are paying for the fact, and the popularity, which today the movie comes out, and the popularity rises. Several years from now, everybody has forgotten that movie, and maybe it is not as valuable.
Take someone who is still playing, a sports star who is still playing like Pat Mahomes. We don’t know what is going to happen with his career. It could go up or down, but someone like Michael Jordan, who is clearly the GOAT. He retired, and it set stone as valuable. It depends on the player. There are a whole lot of the ins and outs.
Back to the original point that you asked about, my favorite asset classes are anything that produces cashflow. I like farmland, and alternative real estate, especially vacation rentals. The reason I like vacation rentals is because they are priced like residential real estate, but they cashflow like commercial real estate, which is a fantastic combination. The one that I love the most is music rights. Music rights are the most underrated alternative asset class.
The reason I love music rights so much is because there is this thinking out there now that Spotify killed music and artists. That is not the case at all. It didn’t kill artists. It changed them significantly. What used to happen is this, back in the ‘90s, as an artist, you come out with an album, and you get a big spike up at the beginning and huge money coming in. It falls, and it bumbles along. It stays low for a long time.
With Spotify and with streaming, what is done is you don’t get that big spike anymore for an artist. What you get is consistently growing revenue over time. The royalties aren’t as high. The revenue per stream is low, but there are more streaming devices every year. There is more time spent streaming. We have several years of data now on Spotify. What we are seeing in the data is that it is consistent cashflow. Anytime you have consistent cash flow, you have buyout opportunities.
Let’s take a step back and think about what that means now. If you are a musician and you are earning $50,000 a year. It is not enough to make a dent in the world and live the life you want but also not champ change. If someone comes along and is like, “I will give you $250,000 for the rights to your catalog. You keep playing anything from this date forward is yours. Anything from this date past is mine. I will give you $250,000 upfront. Five X is your streaming revenue.” For an artist, that is huge. You can buy a house.
As an investor, you are getting a 20% return if the revenues stay steady.
You are seeing a lot of buyouts now for music royalties. Springsteen sold us a catalog. Going back to the old days, Bowie sold us a catalog, and Bob Dylan sold his catalog, but that is all happening at the high-end. There is no one touching the low end at all. There is some big music investing funds. Hipgnosis is a big music rights fund that, amazingly, no one has heard about. They are huge, but again, that is all high-end activity. Nothing is happening below $1 million to $3 million. There are a lot of opportunities there, and that is what I’m most excited about.
It goes similar to the cashflow in businesses and eCommerce businesses where you get this high cashflow. From a real estate investor, who a lot of our readers are, you don’t see those cashflow numbers anywhere. Your collateral maybe not be as strong, but high cashflow and high yield are pretty attractive. There are a lot of these royalties trade. How do you purchase the rights to a catalog of music?
There are a couple of different marketplaces that have popped up now with fractionalization. One of them is called RoyaltyExchange.com. You can buy full tracks and full albums. A lot of the artists you may not have heard of, some you have, it is a full liquid marketplace for buying and selling music royalties. There is another one called SongVest.com.
These are coming up, and that is to say nothing of what is happening at the intersection of music and NFTs, which there is a whole ecosystem happening there. There is not a lot of money sloshing around yet, but give it time, and they will be. The best advice I would have, and it feels weird saying this because we haven’t done this yet, but look beyond the marketplace. Don’t look at what is out there. Go and make a deal happen on your own. Find the artist that might be willing to sell you their rights and also find a good lawyer to help you with the paperwork because that is going to be a big part of it.
Make things happen on your own. Something I learned at Flippa is that the best deals are off-market. There are good deals on Flippa, MicroAcquire, Empire Flippers, and these platforms, but the best deals are the ones that don’t ever make it as platforms. You got to go out, hustle, and find them yourself. I look forward to doing that. We have not done that yet, but it is going to happen.
Several months ago, I looked at some royalty somewhere for music, and it seemed like their ask price was going to net me a sub 5% return or something like that. They are probably all over the map, but is it possible with some digging to find decent returns and double-digit returns?
I personally know someone who has bought royal rights at 30% annual returns. There is no sign of that streaming slowing down. There are some great investments to be made for sure. On the platforms, they tend to trade depending on about 8 to 12X annual net streaming revenue. It is generally what you see. For higher-end stuff, it goes much higher.
Functionally, how does that work? In real estate, you have a chain of titles. As you transfer ownership, you are getting in the weeds here.
I haven’t done it yet. I don’t know exactly what it entails. I do have exactly the right lawyer of mine ready to go.
As a musician and an artist, it is something I have always been curious about. One of the first things that got on my radar was seeing Ryan Tedder, who is a big music songwriter. He sold a catalog of his songs for $250,000 or $250 million to sell a catalog of songs that he had written. They are all these big hits. He is the lead singer. I forget what band he is the lead singer. I saw that transaction. It shows you that there is the interest level that is coming into the space, but for all the reasons you are saying. It is trying to change the economic model, and you are not getting these big pops of income right away from album sales, but it is growing and adds more streaming over time.
Stability is the name of the game.
[bctt tweet=”The line between investing and gambling is getting blurry.” via=”no”]
What other areas are you seeing? We have talked about collectibles and music royalties. You mentioned some of these alternative real estate plays. Talk a little bit about farmland. I’m curious what farmland. How do you cashflow that?
The great thing about farmland is that it produces yield. Crops are sold, and you can get a share of the revenue from that. Of course, it is land, which they aren’t making any more of. We all know how that works. Farmland also is disappearing. There is less farmland in the US every year due to sprawl, development, and all sorts of stuff.
There is a reason Bill Gates is buying up most of the US farmland. He is the single biggest landowner now in the world or the US. I should probably check that fact, but do you know some other people? You don’t, I guess. At the end of the day, and in the spectrum of what is important in life, it is hard to think of anything more important than land that produces food. It is probably the safest long-term bet you can make.
It is not sexy. None of the young kids coming out give a lick about farmland. I try to sell them on it. They are like, “Boring.” Their expectations are skewed because of crypto. It is a whole new world, but they’ll rise up soon, maybe now. I don’t know when this is going to air, but Bitcoin was going out of the hell of a day.
In the beginning, you talked about buying cashflowing businesses and content businesses online. That is something that I have always been a fan of. I used to be a commercial lender and did small-scale M&A, and if you look at the multiple trade ads, it is usually 3X to 5X. If you would buy an online business for 3 to 5 times on annual earnings, it equates to 20% to 33% annualized return. Plus, if you have any ability to increase the value there, you do the value as a strategy you can do in real estate.
It is active. It is even more than real estate is. That is what people do not realize. We all know what real estate is. It takes a lot of work. It is worth it, but it takes a lot of work. People buy these content sites for 3X. They think they are getting the best deal in the world. Oftentimes, they don’t realize how much effort it takes to maintain. It is a more active investment and a little riskier. As we know, you may buy something for 3X, but it may not bring in a whole lot of money.
With Alts, what we do is due diligence on these assets and alternative markets. That is what I was doing at Flippa. I created Flippa’s first due diligence program. We never had anything like that before, but I knew that the market needed to understand how to truly value a content site. I put that together, and it helped a ton of customers. They still have it now. I carried that whole mindset over into more alternative markets.
We talked about some of the big trends driving the movement here. What are some of your predictions? Where do you see this going? Why are you excited about this modern alternative niche in the Alts’ space?
I’m making a life bet that this is not a flash in the pan and this is here to stay. People are investing in themes now more than ever. You even see it with equities. Look at like the world of ETFs. There are more ETFs now than stocks. It is crazy. Why are there many ETFs? ETFs are themed investing. Even within ETFs, it is like, “What are the biggest growth ETFs?” They are all ESG. Why is that? It is not because ESG has the best returns. It is because people want to invest in what they believe in. They want to do right for the world. Investing in climate change and the environment.
We were seeing this as investing with your emotion, your feeling, and what you feel is right. It is almost tribalism in a way. We saw it with meme stocks, game stock, and all of that nonsense. It was nonsense for sure. There is something you got to learn from that. It is that people are investing in voting in what they believe in. I don’t think that is going away at all.
Alternatives offer an even more direct way to vote what you believe in and to invest in what you believe in, as opposed to ETFs, REITs, or maybe targeted funds. Alternatives blow that wide open. If you are a music fan, what can you do with equities? You can invest in publicly traded, like record labels and stuff like that, that is fine, or you can invest in music rights. You can invest in vinyl records themselves. Vinyl is a huge collectible. We love vinyl. I’m a collector of vinyl.
There are signed Beatles records you can get for $25,000. That is incredibly valuable. As if that is not going to be worth more than that several years. The Beatles are always going to be valuable. My point is that you can invest in what you believe in through alternatives like you never could before. I don’t think that trend is going anywhere. That is only going to continue to rise.
Another trend is rising, and I don’t particularly like this one, but I think that the line between investing and gambling is getting blurry. I don’t like it, and with gambling ethically, that is not the issue, but that is the worst way to invest. You shouldn’t be investing emotionally. You shouldn’t be investing in things because they feel good.
You should be doing the hard work, and no one wants to do that. That is what we are bringing to the world. We understand what is happening with that blurred line between gambling and investing. We are helping people navigate those waters. That is another trend. Those are two big ones, and there are others.
You guys put out a great newsletter. How many people have that newsletter now? It is growing like crazy. I see it every week. You guys keep adding a lot of people. Talk about the newsletter. I’m a big fan of it. To all readers, jump on it at Alts.co. You guys launched your first fund to go and invest some of these assets. What is the best way for folks to get access to this newsletter and to learn and be educated more on these unique alternative asset classes?
Sign up at Alts.co and set your preferences. You can tell us what you are interested in, and you will receive content related to those alternative asset classes. We got it dialed in there, and every week, we try to bring new unique investment ideas to people’s minds. We bring them top of mind, like, “We will cover anything.” That is our whole thing.
We don’t build tall. We build wide. If it is not a stock, we care about it. That is what it comes down to. We have covered things like investing in Hot Wheels. We interviewed the guy with the world’s most valuable Hot Wheels collection. It is valued at over $1 million. I love this quirky stuff. We looked at airspace rights. There is not a liquid market for it, but it’s interesting to understand the economics of this stuff. You start realizing that everything can be looked at as an alternative investment. You got to make the moves and make it happen. Sign up at Alts.co, and you will be well on your way.
Stefan, thanks so much for jumping on the show and giving us a whole new look at the world of alternatives, and we appreciate you coming.
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About Stefan von Imhof
Stefan lives and breathes asset analysis and valuations. Prior to co-founding Alts, Stefan was the Head of Product at Flippa – the world’s largest marketplace for buying & selling online businesses. He created Flippa’s Due Diligence Program, and has bought & sold dozens of websites & newsletters. Prior to Flippa he was the first product manager at HG Insights, a market intelligence company sold to Riverwood Capital Partners in 2020. Stefan was born in Boston and is a UMass Amherst alumni. He now lives in Australia with his wife & Boston Terrier, Charlie.
