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Paintings, Unicorns, and the $20 Work of Fine Art

Paintings, Unicorns, and the $20 Work of Fine Art

Who knows? We can dream that innovation, platform investing, and the influx of venture capital may empower a new generation of young artists.

For centuries, art has been related to the mega-rich and powerful. It used to be that kings, popes, and powerful families such as the Medici were the only ones who could finance, own, have access, and invest in the finest of art.

A lot has changed nowadays, though. Thanks to museums and open access to the Vatican, for instance, people from all over can contemplate and rejoice with the works of Michelangelo, Leonardo, Frida Kahlo, or Gustav Klimt.

However, profitable investment in art is still reserved for the realm of the ultra-wealthy. Or is it?

Enter Masterworks

Masterworks.io is an art investment platform with big ambitions. “Our mission is to democratize art investing, a $1.7T asset class,” they unapologetically claim from their website.

How does democratizing work?

Masterworks purchases and stores paintings worth $1m or more from artists like Banksy, Kaws, or Basquiat. It then sells shares of qualified public offerings registered with the Securities and Exchange Commission (SEC). Moreover, investors can trade these shares on its secondary market after the offering closes.

Masterworks is expected to hold the painting for about 3-10 years before selling it (hopefully) for a profit on the secondary market, and then passing the payout to shareholders. The startup’s fee structure consists of a 10 percent built into the initial offering of any painting, a 1.5 percent for every year they hold a work, and a 20 percent fee on the profit when a work is sold.

“The result,” Tim Schneider wrote in a deep dive into Masterworks for Artnet News Pro, is that “everyday people can own, say, one half-millionth of a certified original Jean-Michel Basquiat painting for a mere $20.”

An exclusive club no more

Masterworks’ innovative business model seems to be picking up steam.

The startup has more than 200,000 registered members. Of those, 15,000 have acquired shares in artworks traded on the platform. Their average investor puts around $5,000 into each painting they back.

A few months ago, the art investment platform secured a $110m Series A investment at a valuation north of $1bn – effectively giving the company unicorn status. On top of that, CEO Scott Lynn told Axios that Masterworks expected to buy nearly $400m of art last year and closer to $1bn in 2022. Masterworks can very well become the biggest buyer in the art market.

“Art is among the largest asset classes remaining that has never been securitized,” said Mr. Lynn. What is more, so-called blue-chip art, artworks created by the most important and widely recognized artists, whose position in the auction market has been solidified by unprecedented sales volumes for several years, has outperformed the S&P 500 by 180 percent in the 2000 to 2018 period.

Platforms like Masterworks are leveling the playing fields. Entrepreneurship and innovation bring everyone opportunities that used to be only for the wealthiest of us. This even-up transformation cannot be overstated.

The next frontier 

Trey Lockerbie of The Investor’s Podcast brought a very stimulating idea to his interview with Scott Lynn. What if venture capital identified and backed emerging artists? Mr. Lynn said the idea was “interesting” and that although it is currently “more of a speculative product,” he would love to roll out something to help aspiring artists in their early days.

Who knows? We can dream that innovation, platform investing, and the influx of venture capital may empower a new generation of young artists. And maybe even make art beautiful again.

Author

  • Paintings, Unicorns, and the $20 Work of Fine Art

    Federico N. Fernández is Executive Director at Somos Innovación, and CEO at We Are Innovation (Somos Innovación’s sister organization for Europe). Federico is Founder and President of Fundación Internacional Bases and also the Chairman of the Organizing Committee of the International Conference “The Austrian School of Economics in the 21st Century,” which takes place in Europe and LatAm alternatively.

The views expressed on austriancenter.com are not necessarily those of the Austrian Economics Center.

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