Morgan Stanley
  • Access & Opportunity Podcast
  • Aug 26, 2021

Fractional Ownership: From Sneakers to Jets

Transcript

Gerome Sapp: Fractionalizing an asset is just splitting it up into multiple pieces virtually and allowing individuals to invest in different sections of it. So it's just expanding opportunity because more people can invest in an asset that otherwise wouldn't be able to.

Carla: On today's episode of Access and Opportunity, we're talking about fractional ownership. We'll hear how former NFL safety Gerome Sapp is using sneakers and fractional investing to spread financial literacy. And later, I'll speak to entrepreneur and former Air Force pilot Glenn Gonzalez about how he came to embrace the same technique in aviation with his company Jet It.

Glenn Gonzales: Buy a piece of the airplane. Reduce the monthly or the fixed expenses, share those expenses across a group of people. and that affords access to so many more people.

Carla: Welcome to Access and Opportunity, I’m your host Carla Harris. And we’re telling the stories of individuals working to drive change within their communities. We want to provide our listeners with context about racial inequities and share tangible examples of how ideas around access and opportunity are being made real every day.

We'll hear from Gerome Sapp, a lifelong learner, former NFL player, and diehard sneaker fan who's using his love of sneakers to introduce a new kind of investing to the market. 

Gerome Sapp: When I was in elementary school, I created the Gerome Sapp Club. So I would charge people a dollar to be a part of it, which is kind of narcissistic, I guess.

Carla: Gerome's one of those guys who's got a lot of business ideas, ever since he was charging other kids to hang out with him.

Gerome Sapp: And I was actually making pretty good money until the principal found out about this.

And I had to disband the Gerome Sapp Club.

I'm originally from Houston, Texas. I grew up in the fifth ward, which is kind of an impoverished area, I would say  of Houston , but you know, I grew up with a lot of love. My mother raised myself, my brother and my sister. I was, I was the baby.

So I think I was always the inquisitive one because I probably didn't get in trouble for a lot of things I should have gotten in trouble for. But, there was a lot of love coming from the home. So I think that is one of the reasons why coming from that area, I was able to leave that area.

 With a soft heart and not have a jaded look at society. And you know, some of the other misfortunes that people coming from those environments may have sometimes.

Carla:  Growing up, Gerome and his brother spent a lot of time outside. They played basketball or came up with workout routines for themselves. But the thing they did the most was play football.

Gerome Sapp: everywhere we went, even we slept with a football. So it was one of those things. By the time I was 10 or 11, I knew I wanted to play in the NFL.

Carla: Gerome went on to play football for Notre Dame, and went pro in 2003 when he was drafted to the Baltimore Ravens. It was his dream come true. But it wouldn't last forever.

Gerome Sapp:  At a certain point, my body would stop performing.

which, a lot of athletes, that's a tough pill to swallow that reality,  But I always prepared for that. So I prepare my mind the whole time when my body leaves me or allows me to not do what I could do to make the living that I was making, that my mind would pick up where that left off and actually propel me further.

And that's why I actually, I went and got my MBA at Harvard business school while I was playing in the NFL to prepare me for that.

Carla: Instead of dreading life after his football career, Gerome was excited. He couldn't wait to start a business.

Gerome Sapp:  I remember in college, just staying up all night, trying to go to bed, just looking at the ceiling, we had bunk beds in college, and just thinking of all these ideas, and I remember thinking like, man, this is going to be so hard to choose which one I want to do.

And I couldn't go to sleep because I would be so excited. To, to get into the real world and to have the money, to try to do some of these ideas.

Carla: While Gerome was still playing in the NFL, he started his first venture: a 100% sustainable sportswear business with partners from Notre Dame.

Gerome Sapp:  For the first time, It was something that I started from scratch. And you always say it's one thing to be an entrepreneur, but it's one thing to start something from scratch, from a concept and seeing it actually come to fruition.

Starting that business taught me that I can do anything. Cause I knew, I didn't know a dang thing about sustainability.

But our first customers were the Navy Seals.  And, you know, after pitching those guys, I was like, man, shoot, you can pitch anyone.

Carla (VO): Despite the success of his career in the NFL, an MBA from Harvard Business and his first venture under his belt, Gerome knew that what he really wanted to do was create something that provided increased access to folks who grew up like him.

Gerome Sapp: when I grew up. I knew what it felt like, what it tasted like I knew intimately what a lack of access meant basically. I mean, I knew what I knew, what it meant to go without. So I always told myself if I had the opportunity, I will create a company that will help solve the problem with access, especially for those underserved communities.

Carla: Gerome saw his chance. The spark of inspiration came from a moment at Harvard Business school. He was on his way to class, and he was wearing his favorite sneakers - his Air Jordans.

Gerome Sapp: someone stepped on one of my Jordans.

And I remember wiping my shoe off when I got to class thinking, man, there's gotta be a better way to derive value out of this sneaker without ever having to wear it and have someone step on it.

I was like, man, what if you could turn this sneaker into a security, just like a stock and divide it into shares and people can invest in shares. So ultimately when the value of the shoe rise is just like when the value of a company rises. So do the value of the shares people own in that company. And I was like,  you could do that with a shoe, if you could securitize it.

It's one of those things that we can all relate to sneakers to some degree. I mean, even back when we were kids, you know, our first sneakers and for me, you know, I remember kangaroos, you know, I thought I could run faster with kangaroos sneakers, you know, because with the little kangaroo on the side and thought I can jump higher.

When Jordans came out, it was more than a sneaker. It was more of an identity. If Michael Jordan, this black kid that came from where he came from could get a company to make a sneaker for him, then shoot, maybe I can, too?

And I think in all the hoods across America, in the world, at a certain point that was a sense of identity. If I was wearing a Jordan that was like a sense of pride. This was, this was our hero and he has his shoe. And now I'm rocking that shoe and maybe one day I can have my shoe.  It was a sense of identity, Jordans represented, being positive and success.

Carla: But, sneakers aren't just symbols of success, they also hold incredible monetary value.

Gerome Sapp:  Most people just look at sneakers as sneakers -- piece of leather and glue and rubber.But sneakers are a new asset class. Just so people understand the magnitude, how colossal the sneaker, the global sneaker industry, it's a $79 billion a year industry and it is projected to grow to I think 126 billion by the year 2026. And sneakers, from an investment standpoint -- meaning if you were to invest in sneakers as opposed to something else -- they've outperformed gold, the S&P500 and Apple stock, and many other traditional high performance securities.

Carla: Gerome began work on a new company he called Rares. It would be a stock market for investing in collectible sneakers. By combining his experience and education with a market he had participated in for years, he saw an opportunity to make the sneaker market more  accessible through fractional Investing.

Gerome Sapp: So fractionalizing an asset is just splitting it up into multiple pieces virtually, and allowing individuals to invest in different sections of it. So, it's just expanding opportunity because more people can invest in an asset that otherwise wouldn't be able to. The concept has been around you, you take a company, right? When Apple went public, you basically took the company, Apple Inc., and you divided it up into millions of shares and allowed the public to buy shares in that company. Every company that's public has been fractionalized and people can buy a fraction of ownership in that company.

For the generation Z coming up and even part of our generation, the stock market is kind of this foreign thing. It's like our parents and grandparents kind of playground, they played in to make money, it's kinda like a club that you feel like you're not really meant to be a part of and they kind of keep it that way.

Carla: Rares is Gerome's idea of taking the wealth creating potential of the stock market, and adding a cultural lens that more people can understand.

Gerome Sapp:  For a lot of people, this is their first investment, their first time dealing with securities. So, you know, we, it's almost like a gateway into the big boy investment world. You know, if you can offer them something to invest in that they already have some sort of familiarity with and then you continue to educate them, not only on the asset, but how to, how to be better investors with the asset. That's what we're all about at rares: financial literacy. You know, financial literacy saved my life. You know, if I didn't learn finance, who knows how it would have spent my money as an NFL athlete, as a young kid, getting that type of money, you know, it's hard to learn how to manage it. If you don't know the concept of saving, because you never had enough, then you're going to grow up without the concept of saving. Right?

We want to get to a point where we create a Rares university.  We want to do seminars to make sure people are not only using the platform, but using it in the way that they're most beneficial for them too.

Carla: Gerome's hope is that Rares can teach financial literacy and bring a culture of investing to new communities. But it's also to change who is reaping the benefits of the growing sneaker industry.

Gerome Sapp:  Along the way, the sneaker industry priced the communities out that made it hot, that made it valuable. The communities I grew up as an eighties baby, we made the sneaker industry invaluable. Because we talked about it all the time. We were the first to really rock Jordans but somewhere along the line, the sneaker community left those people out and took all the value and popularity. So for us, we're, we're sort of re-gentrifying the sneaker industry. And allowing those people, the communities and the cultures that made it hot, the ability to now come back in and financially participate at a price they can afford.

So you may not be able to buy a Jordan for $250, but you can buy a share in the Jordan for $15 or $20 and reap the financial benefit as that shoe appreciates, so does that share that you own in the shoe, or multiple shares you own in the shoe.

So invest in the culture that you had your hand in, we all had our hand in, and make it valuable.

At the end of the day, it's all about, you know, no pun intended access and opportunity, right?

 If you're allowing people to have an easier opportunity to own something or own a piece of it, you're giving them access and a better opportunity.

Carla: By taking these expensive sneakers, and splitting ownership into parts, Gerome has found a way to open a corner of the market to people who previously lacked access.

Our next guest Glenn Gonzales is taking this same concept but applying it to a very different asset. After training as an Air Force pilot, Glenn combined his experience and passions to create Jet It, a company that brings private aviation to people who previously thought it impossible. Like Gerome, Glenn saw an opportunity to broaden the benefits of a booming industry.  

Carla Harris: Glenn. Thank you so much for being here with me today. It's a pleasure to have you on the show. I'm ready to jump right in. Are you?

Glenn Gonzales: I'm ready. Carla, thank you so much for having us.

Carla Harris: So now we have to start with your background as a fighter pilot with the Air Force. So what led you down that path?

Glenn Gonzales: Well, Carla, as far as I can remember, I've wanted to be in airplanes. And when I went and had an opportunity to attend college, I had the best of all of everything that I wanted. I could play division one sports. I could get a tremendous education. And I might have the opportunity to fly airplanes in the Air Force academy.

 It was the best of all, three. Unfortunately when I went from my very first physical the first thing that I heard was the optometrist during the evaluation says, Glen, congratulations on your appointment to the Air Force academy, but you're never going to fly airplanes.

Maybe you can fly in the back of the airplane. And fortunately the Air Force needs changed over that time. And because I was correctable 20/20, I had the opportunity to fly fighters and do some great things.

Carla Harris: Now let's talk about the lessons that you learned from that experience, because obviously I know there are many, but as you think about who you are today as a successful entrepreneur, as a leader, as somebody who's trying build a culture, if you will, what are some of the lessons that you, as you trace back, you attribute to your experience in the Air Force?

Glenn Gonzales: That first experience in that optometrist chair taught me that, you know what? Sometimes the solution may not be perfect.

It may only be an 80% or. 66%. I had the division one sports. I had the absolutely best education that I could get in the country, but I was missing out on that last piece of flying airplanes, but I still pursued two out of three. And I think it's that you don't have to have perfection in order to have excellence in order to achieve your dream.

Carla Harris: Okay. So let's talk about your transition from the U S Air Force into business. You know, how was that decision made and did that happen while you were in the Air Force, you said I'm going to go off and do X, or did it happen as you were leaving and you were sort of trying to figure out, you know, what your path might be?

Glenn Gonzales: Well I've learned through my time in the Air Force, you have to figure things out and start the process early.

And my wife and I, we have a very simple saying when you know your values, your decisions are easy. At the time I was married, I had a one-year-old and a three-year-old daughter. And I was about to be deployed by the Air Force at the time to a one-year remote assignment without my family. So I had an opportunity to make a transition out where I could still serve in the reserves and transition to something different.

There was a lot of uncertainty tied to that, but it was worth the leap to keep our family together, to spend that time together and start a new path, and, and achieve future goals that we had for ourselves.

Carla Harris: So you left the Air Force and went right into the, uh, airline industry, right? Didn't you spend some time with Gulf Stream and Honda Aircraft? Tell us a little bit about that.

Glenn Gonzales: I did. That experience was great. It was at Gulf stream aerospace company, and it didn't start off. Great. I was there for two months. I started in March of 2009.  As you know, the economic global downturn was in full swing at that point in time. And I was there for, unfortunately, all of two months.

And it was an interesting experience in that I actually lost two jobs on the very same day.  And what I learned during that six months where I was furloughed was I can do a whole lot more than fly airplanes. I'm a great project manager. I did some defense contract work where I did program management. I did some sales and business development.

It taught me and reminded me. It didn't really teach me. It just reminded me that, gosh, you went to the Air Force academy. You've been a leader. You've been a somewhat decent student. I've done a lot of different things that were transferrable and the pain of that experience being unemployed for six months and being reliant upon external sources taught me that I can do more and I will do more.

So Gulf Stream did bring me back and I set my sights on moving into sales as quickly as I could. And it was there that I understood further the business side of aviation.

Carla Harris: So now let's talk about the aha moment where you said I can do this on my own. I can offer something that is not in the marketplace today and let us use this as the, the entry for our listeners into what is Jet It?

Glenn Gonzales:  In selling the airplane, that competitive nature for any salesperson, any athlete, any musician, always seeking perfection. And in trying to sell the whole airplane, I heard the same thing constantly. Glenn, I love the airplane. It's perfect for my wife and I to travel from New York to South Florida. It's only a low cost per hour to operate the airplane. This is what we need. But I'm not going to buy a whole airplane, Glenn. I don't need the airplane that often. Can you help me find someone to help me bring down that cost of acquisition? Help me find a partner? And it turned out that 80% of the time people had the same concerns about buying the whole airplane. As a competitor, as someone who's type a wants to win, wants to sell, I had to find another solution and the solution was Jet It.

Let's give people the low operating cost at $1,600 an hour for a jet owner. But they don't have to buy the whole airplane, buy a fraction of it. Buy a piece of the airplane. Reduce the monthly or the fixed expenses, share those expenses across a group of people. And those people don't have to know one another. They don't have to be connected with one another. They can be spread out across the country. And that's what we've accomplished.

Carla Harris: So let's talk about this. It was a playbook point. It is a playbook point for our listeners, because you're saying that you're in a space where you're selling aircraft, the entire aircraft, but you're hearing feedback from customers that you were logging.

So you kept listening to what the market was saying. And the market was saying, I don't necessarily want an entire plane. I want access to a plane and I don't mind owning a portion of the plane. And so you began to figure out creatively how you could bring a solution to these potential buyers.  Let's talk about how that, that business model changed the traditional demographic of those who could use private planes.

Glenn Gonzales: yeah, most people think you have to be a billionaire to, or a hundred, some odd millionaire to have access to private travel. That is so false. it's a mistake that a lot of people make. The reality of it is we've carved out a niche for the small and medium sized business owners, with the Jet It program you no longer have to squeeze and pinch pennies or ration out the number of hours that you have, you know, that you're going to have the D the jet for a day. And at the most from a flight time, maybe you're flying 10 hours in a day.

That's a lot of flying, but, at the most you're, you're $16,000 for 10 hours of flight flying. So, that level of productivity is now justifiable.

Carla Harris: Let me just ask you at $1,600 per hour, uh, on a flight, that's still one would argue. Yeah. You're not accessible to a broad swath of, of the economy. Do you ever see a business model such that, that may, that you may be able to bring that down and that it might be more accessible to, you know, to folks who are in a different economic strata?

Glenn Gonzales: absolutely. I think the biggest challenge in the reason for the $1,600 an hour, the Honda jet is the world's most efficient jet aircraft. but it's, it's physics. In physics if I want to move 10,000 pounds of anything, it requires a lot of energy, so that comes at a cost. Can we bring that down? There are so many technologies of electric aircraft. We've been exploring that.

So we can support more people with aviation, but at our price point, we're about a fifth the cost of everyone else in the market, and that affords access to so many more people. I mentioned that we carved out a new niche. We have new aircraft buyers that are new private aviation users coming into our space.

And that speaks to opportunity for Jet It, but more so it speaks to, there's a very large segment of the market that can gain access to us.

Carla Harris: So let's talk about oh so tough thing of raising capital, because that's one of the things we try to do on access and opportunity is put a playbook in the marketplace because we know that there's an inequity in the distribution of capital to multicultural and women founders.

So can you share with our listeners what your journey was, especially given the, the journey that you've laid out for us?  Let's talk about how you raised that first capital to get started with that first plane and be able to sell those shares.

Glenn Gonzales: Yeah. I think the capital raising begins with having a sound plan. So I planned every single aspect of Jet It, just like I would plan a mission in the Air Force flying fighters.

The consequences of failure are too steep.  So. In planning it, you had to figure out what are your threats, those threats that are known, those threats that are unknown. And then you also have to mitigate the risk for the unknown unknowns, the things that happened like COVID that you could not have predicted.

 Once we had what we believed to be a solid plan, financials, legal, everything in place, then we could go fundraise. So that's step one. You've got to have a plan.  The first place we looked for fundraising was, well, who do we have in our individual network?

We started with the individuals that we knew were interested in the airplane that were interested in utilizing the airplane. And some of them were receptive, but most of the time they made introductions to others who were interested and ultimately where we landed,

Was with an investor who just provided enough for us to get going.

Carla Harris: So again, another great playbook point. Everyone understands or is when widely written that your multicultural entrepreneurs, in particular, don't often have the friends and family, which is where a lot of tech entrepreneurs start to get started, to have the proof of concept to show that in fact it can work.

But one of the things that I've heard you say that I haven't heard a lot of entrepreneurs of color talk about is that while my friends and family didn't necessarily exist with capital, they all knew somebody. So I leveraged the relationships that they had to get an introduction that led to another introduction that led to another introduction that I could leverage that ultimately resulted in us being able to raise the capital.

Excellent. So what's around the corner for Jet It?

Glenn Gonzales: The main thing for us is how do we bring down the cost of acquisition? Again, we're listening to our customers. We're listening to people who love our service.

You'll see the next thing from us around that space. We're very excited about it. We are very confident that that will be the final piece of us ideally becoming hopefully a disruptor in the space, but more importantly, it's allowing it will allow us to serve more people and provide a tremendous service to give time back to everyone.

Carla Harris: A lot of people don't know that you hold world records for aviation. So before I go to the fun part of access and opportunity around the lightning round, uh, any flight records that you're looking to break?

Glenn Gonzales: You know, I guess, uh, it's no longer about the records that I've been able to set. Carla , ideally I'd love for Jet It to set some records on the giving side of things, as we are giving to our community raising funds, we are just under a million dollars since our inception that we've raised for a number of organizations typically focused on children and health matters.

And so hopefully we can set some, some records around that, around the world.

Carla Harris:  That is  outstanding. And again, congratulations. I was only half kidding on the records, but oh my goodness. Little did I know? So we have a tradition on Access and Opportunity that's called the lightning round and that's where we ask you a series of questions and you should answer exactly what comes to your mind. And it's an opportunity for our listeners to get to know you a little bit more than what they might've been able to glean from our conversation. So are you ready?

Glenn Gonzales: Let's do it.

Carla Harris: Here we go. Twitter or Instagram?

Glenn Gonzales: Instagram

Carla Harris: Okay. City or countryside?

Glenn Gonzales: Countryside.

Carla Harris: Coffee or tea?

Glenn Gonzales: Tea.

Carla Harris: Working in the office or working from home?

Glenn Gonzales: Office.

Carla Harris: If you had a talk show, who would you want to be your first guest?

Glenn Gonzales: Well, I'm talking to my first guest.

Carla Harris: I'll take that. Thank you very much, sir. And one word to describe your legacy?

Glenn Gonzales: Transcendance.

Carla Harris: Wow. I don't think we've heard that one on the show. Wow. Well, Glenn Gonzalez, thank you very much for giving us the privilege and the honor of speaking to you and learning more about Jet It. Thank you very much.

Glenn Gonzales: Carla. Thank you. And your team. This is a wonderful experience. Thank you so much.

Carla: Today we saw how fractional investing, a concept that's been around for a long time, is being used in new and innovative ways to open doors that were out of reach for many people. Both Gerome, with Rares, and Glenn, with Jet It, listened to the needs of communities that were being priced out of ownership.

You know, our last episode focused on owning land or a home, but we shouldn't stop there. Creating more access and opportunity extends to being able to engage in cultural phenomena, like sneakers, and even glamorous experiences, like private flight. Being able to partake in the economic boom of different assets and industries helps to level the playing field and enables those who traditionally might not have had access to these experiences to participate and benefit from their expansion.

So, I commend Gerome Sapp and Glenn Gonzales for the work they're doing to open up their industries to more people. And I want to thank them for joining me on this episode of Access & Opportunity.

What did you learn today from Gerome and Glenn? Send us your thoughts at carlapod@morganstanley.com. We would love to hear from you. Subscribe to Access & Opportunity on Apple Podcasts or wherever you listen. Thanks for coming along.

 

Gerome Sapp, former NFL player and diehard sneaker fan, has found a way to turn his passion for sneakers into a new kind of investing via his company, Rares. Also, former Air Force pilot Glenn Gonzales, founder of Jet It, provides a new set of customers the opportunity for ownership and private air travel.

On this episode, we learn about alternatives to traditional investments that provides access to new groups of investors. We hear from Gerome Sapp, a former NFL player who conceived of Rares, a platform that makes investment more accessible by allowing his fellow sneakerheads to buy and sell shares in particularly notable and rare sneakers. Host Carla Harris then sits down with Glenn Gonzales, a former Air Force pilot who turned his love for aviation into a business opportunity by founding Jet It, a company that is working to open the private aviation industry to a broader demographic. Jet It makes luxury more affordable by allowing clients to own a fraction of a jet. Come on and join us for the ride.

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