These 5 Companies Are Betting on Fractional Art Ownership. We Read the Fine Print to Figure Out How Each Deal Actually Works
These companies are betting on the future of art investing piece by piece.
A version of this article originally appeared in the Artnet News Pro spring 2022 Intelligence Report.
If investment is your only motivation for buying art, why go to the trouble of actually owning it at all? That’s the unofficial pitch from a spate of new companies using blockchain technology to sell shares of valuable paintings, NFTs, and other collectibles. Gone are the headache and cost of insurance, shipping, and storage. Also gone, of course, is the joy of living with art.
Here’s an introduction to some of the biggest players banking on the idea that the future of art ownership is fractional.
Founder: Scott Lynn, a venture capitalist and online advertising entrepreneur
Funding: $110 million in Series A funding last year, led by the venture fund Left Lane Capital
The Sales Pitch: Investors can cash in on the art market by purchasing and trading shares in works by established artists like Andy Warhol, Jean-Michel Basquiat, Keith Haring, and Yayoi Kusama.
How It Works: When Masterworks purchases a painting, it registers the asset with the Securities and Exchange Commission and then offers shares in the work to investors, IPO style. The company says it offers investors about one new painting every four to five days. Masterworks adds an approximately 11 percent fee on top of the original purchase price when it lists the work on its website and charges a 1.5 percent annual management fee. When an artwork is sold, the company takes 20 percent of any profits; the rest is distributed among the shareholders. Investors who want to exit before the sale of the underlying work can sell their shares on Masterworks’ secondary market.
Minimum Investment: $20
Founder: Milind Mehere, cofounder of online marketing company Yodle, and Michael Weisz, a finance and real-estate executive. Rebecca Fine oversees the art platform; she was a founder of Athena Art Finance, which was acquired by Yieldstreet in 2019.
Funding: $328.5 million, including $150 million in Series C funding last year
The Sales Pitch: Yieldstreet’s Art Equity Funds offer clients the opportunity to invest in collections of works by a range of artists with significant potential for appreciation. Each fund has its own theme—one, for example, focuses on African American artists working from the Harlem Renaissance to the present, including Jacob Lawrence, Norman Lewis, Faith Ringgold, and Glenn Ligon.
How It Works: Distributions are made to investors as the artworks are sold over the life of each fund, which is set at five years with the possibility to extend for an additional one to two years.
Minimum Investment: $10,000
Founder: Loïc Gouzer, former chairman of Christie’s postwar and contemporary art department; Adam Lavine and his son Shingo Lavine; and crypto brokerage Voyager cofounders Phillip Eytan and Oscar Salazar, Uber’s founding CTO
Funding: $15 million in seed funding, including from Voyager and Atrum
The Sales Pitch: Particle utilizes blockchain technology “to revolutionize the way people own, collect, experience, and enjoy art masterpieces.” Its first purchase: Banksy’s Love is in the Air, for $12.9 million. Particle clients get to own NFTs that represent a specific piece of an artwork (like the lower right corner, for example) rather than a general share.
How It Works: The company divides each artwork into a 100-by-100-square grid, resulting in 10,000 unique “Particles,” which are then minted as NFTs and offered for sale on the Avalanche blockchain platform. (The first Banksy offering made $10 million in its first few weeks, with more than 8,000 Particles sold; secondary sales surpassed $1.5 million on February 14.) Buyers get digital certificates with images of the squares they own; the certificates double as tickets to the physical location where the painting is stored. One percent of the Particles are donated to the Particle Foundation, which maintains ownership of the physical works and tours them to museums and galleries around the world. The current plan is never to sell the underlying physical art.
Minimum Investment: $1,500
Founder: Gerome Sapp, a retired NFL player; Matt Hall, a former Peloton executive; and Hector Tantoh, a consultant and logistics expert
Funding: $4 million in a seed funding round led by MaC Venture Capital and a $1 million pre-seed round
The Sales Pitch: Rares offers users the chance to purchase shares in the rarest sneakers in the world and the opportunity to make money by selling those shares on the secondary market.
How It Works: Like Masterworks (but for shoes), Rares acquires sneakers, registers them with the SEC, and offers them to investors on its app. Once the shares are sold out, users can immediately begin trading them on the secondary market as the value of the shoe fluctuates. Users who hold on to their shares until Rares sells the shoes (a period of around eight to 12 months), get paid out based on the final price. The company also charges a 1 percent fee to cover its brokerage costs.
Minimum Investment: $25
5. Artory/ Winston Art Fund
Name: Artory/Winston Art Fund
Founder: Elizabeth von Habsburg, art appraiser and president of Winston Art Group, and Nanne Dekking, founder of digital art registry Artory
Funding: Artory closed a $4.5 million round of fundraising in September, led by Borderless Capital
The Sales Pitch: The group seeks to combine Winston’s expertise in authentication and due diligence with Artory’s facility with tokenization and fractionalization to transform physical artworks into robust, accessible financial products that appeal to investors in crypto and real alternative assets alike.
How It Works: Like Yieldstreet, the Artory/Winston Art Fund specializes in offering investors shares in curated collections rather than individual artworks. The first grouping, worth a combined $5 million, will focus on emerging art and be sold after a relatively short holding period. More diversified offerings—which span blue-chip, mid-career, and emerging art—may exceed $20 million and will be held for five to seven years. Investors will purchase and trade a token representing their ownership stake in each fund on eco-friendly blockchain Algorand. The token’s certificate includes ownership, provenance, value, and other information and is continually updated through the lifecycle of the underlying artworks.
Minimum Investment: $100
This article is from the spring 2022 edition of the Artnet Intelligence Report, which is available exclusively to Artnet News Pro members. For a deep dive into the market for fractional art, a breakdown of the best performing artists of 2021, and more, click here.
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