SaaS Interviews with CEOs, Startups, Founders
Masterworks: SaaS Wealth Going Into Picasso Paintings, 20x Returns?
17 Jun 2020
Chapter 1: What is Masterworks and how does it allow art investment?
You know, we're raising in excess of six million dollars, seven million dollars a month in capital, growing by more than 30, 40 percent a month. So it's, you know, the cadence is pretty high. We're launching another offering on Monday by an artist named Kusama. So, you know, it's basically one offering every two weeks between one and ten million dollars a painting.
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He's the founder of Masterworks, the first company to allow investors to buy shares representing ownership, follow me here, of great masterpieces by artists like Warhol, Monet, and Banksy.
Scott has been an active collector of contemporary art for more than 15 years and has built an internationally recognized collection of abstract impressionism that has included works by a lot of big name artists. And because I can't pronounce their names, that's how you know they're very good. Scott, are you ready to take us to the top? I am.
I'm reading your bio going, OK, I'm going to butcher every one of these. Let me let me pass it off to Scott. So let's just be clear before we get into your backstory and how you built this company. I can give you a thousand bucks and you can give me almost like an index of art from all these companies or all these artists.
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Chapter 2: How does Masterworks fractionalize ownership of art?
Um, you know, still not profitable yet, but hope to be profitable this year.
And so let's talk about revenues. How do you make money?
So we make money very similar to how a hedge fund makes money, which is on a 1.5% per year management fee plus 20% of the profit when a painting sells. Fairly straightforward.
How do you make sure to resist the urge to essentially day trade paintings to take the 20% of profits versus holding over a longer period of time where there might be even extraordinarily more gains?
Yeah, it's really hard in this asset class to day trade paintings. You know, it's hard to buy a $10 million Picasso and then sell it a month later for $12 million. So we really tell investors to think of these as long-term investments, right? These are three to seven year holds.
But when you look at the performance of some of these artists overall, you know, we tend to see returns anywhere between Eight percent a year and 30 percent a year. So the returns are very interesting. So long as someone can can hold the investment for a longer period of time.
Interesting. OK, so at one to 10 million kind of per offering, you've done 13 today. You know, you have north of 13 million, quote unquote, under management. Right. With potentially as much as what, like 100 million, something like that.
Yeah, I mean, I think at this point we're over $30 million, maybe more than that under management, yeah.
Yeah, interesting. And so why this pricing model? Why treat this like a hedge fund?
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Chapter 3: What is the potential return on investment in art through Masterworks?
Um, and we talked to them, we really talked them through, I guess, how to think about different segments of the art market, how to think about returns, how to think about risk. Um, and then we work with them on, on what percentage of an allocation they think makes sense for their, their individual portfolio.
So that's 63,000 folks on the platform. How do you define on the platform? How have all those people put in at least a dollar into a piece of art?
Yeah. So those are people that have come to the platform, um, you know, scheduled to call with their membership team. They, they may or may have not invested. You know, I think our active investors now are somewhere above 10,000, but, but not pretty high 63 to 10,000, still pretty high conversion rate. Yeah. Yeah.
I mean, we, you know, we, we, we've had really good reception with the business just because people love the idea of investing in this asset class. And there really hasn't been a way to, uh, up until now.
This is very interesting. Okay. So give me more of your back. So you bootstrapped company, you were an ad tech and then FinTech.
Yeah. So I started my, I started my first company. I was actually a gaming company for, uh, you know, your, your listeners who are a bit older, but we, we built the most popular game on the internet and like 97, 98, which was, Uh, do you, I don't know if you remember the punch, the monkey banners.
Interesting. I have no idea. I was young. I would have been like 10.
So I'm 40 now. So I'm unfortunately on the older end of most people in the industry. But, uh, yeah, so I, you know, I did that in high school and, um, uh, you know, grew that company to a, to a pretty sizable company when it was 19, 20 years old. Um, and then left that started a company called ad knowledge.
I mean, what is sizable? We were talking like millions and millions or what?
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Chapter 4: How does the current economic climate affect art prices?
Yeah. Very profitable business. I mean, we, I think we were one of the very few companies during the.com boom that was, you know, making, you know, close to a million dollars a month in EBITDA.
Um,
And you got out, you got out in time or did you go through the crash?
You know, we went through the crash. So that, that was a, uh, that was an interesting learning experience. So we had a, we had a pretty big profitable business that, um, that for a whole bunch of reasons, mainly most of our advertisers were.com companies, uh, ultimately didn't ultimately didn't survive that, that cycle.
Um, but then, then from that really moved in online advertising, sort of a whole string of different online advertising companies, um, prior to, to masterwork sort of a company called payability, um, which essentially finances e-commerce sellers.
Are you familiar with ClearBank? Is the model going to work?
I think it's an interesting business.
Come on, you're being nice. Is the model going to work?
I think a lot of these companies in today's dynamics are struggling depending on who they've loaned money to. I think payability is really unique because we've lent money to e-commerce sellers which right now are counter-cyclical, right? So e-commerce is on fire, but traditional retail is really, really struggling.
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