As investors look to diversify their holding amid exceptionally top-heavy traditional asset markets, more tech-enabled platforms are popping up to make the case for their alternative investment platform of choice. Masterworks, a startup that sells fractionalized shares of paintings and other works by famous artists, has achieved a unicorn valuation as it looks to corner the market on bringing fine art exposure into people’s portfolios.
Masterworks announced today that they’ve raised $110 million in Series A funding at a valuation north of $1 billion. The round was led by NYC-based venture fund Left Lane Capital, with participation from Galaxy Interactive and Tru Arrow Partners, among others.
Alternative assets have become big business in the past couple years as public markets have grown frothier and investors look to chase bigger returns in less traditional markets. The alternative asset class is a diverse one, and among markets for mint condition N64 cartridges, Pokémon Cards, Air Jordans and NFTs, fine art occupies a more traditional segment of the class and one with more predictable upside and downside.
“Art as an asset class is not a GameStop or an NFT, at the end of the day the returns are fairly predictable,” CEO Scott Lynn tells TechCrunch. “Investing in one of these paintings, you’re never going to earn 10 times your money, but you’re also probably never going to lose 90% of your money.”
As such, Masterworks isn’t a platform backing up-and-coming painters, they’re wholly investing in artists that have a proven market around the value of their work, Lynn says. “We really believe that the only investable segment of the art market are paintings [worth] a million dollars or more, generally speaking, and when I say investable, I mean something that produces predictable returns,” he tells us.
Masterworks buys and stores a number of paintings by famed contemporary artists like Andy Warhol, Keith Haring, Jean-Michel Basquiat and Yayoi Kusama, selling shares in qualified public offerings that are registered with the SEC, allowing investors to trade those shares on its secondary market once an offering closes. Shareholders get paid out when Masterworks eventually sells a painting. The startup makes money by selling those paintings at a profit, earning 20% of the profit each time a painting sells alongside a 1.5% per year management fee on each piece of artwork.
The startup is still chasing after investors with a fair amount of capital to invest, with Lynn noting that their average investor puts more than $5,000 into each painting they back, investing around $30,000 over their lifetime.