Masterworks continues to innovate, challenging stale art finance models

When you imagine the typical fine art investor, you probably picture someone in a designer suit bidding on a masterpiece for ungodly sums of money. These are people with access to funds, insider tips and private sales events that everyday investors simply can’t touch.

The rise of the Masterworks app over the past five years has changed this picture, and the recent opening of the first themed exhibition at its subsidiary, Level & Co., in New York City, is a further step in the company’s aim to democratize art investing. 

Having already established itself as a fintech market force, Masterworks is now going beyond fractional investing in art and is positioning itself as a key player in the wider art finance world, bridging the gap between everyday investors and specialized art dealers.

Here’s how the startup is revolutionizing existing art investing paradigms.

Connecting different nodes in the art market

Masterworks is unique in the art finance world in that it does not act as a dealer or a direct purchaser of art. Instead, the company acts as a connector. For instance, when offering an investment opportunity to the public, Masterworks merely acts as a conduit for investment via the platform. It securitizes acquired paintings and offers fractionalized shares to the public.

The company also plays a critical role in simplifying the art world for ordinary investors. Masterworks oversees the messy bits like negotiating with art dealers, finding the right opportunities, and handling security and storage. 

Masterworks’ original premise, to make art investing more accessible, has had an interesting side-effect that has propelled the company to further challenge existing art investing norms. Surging interests in Masterworks-managed assets has pushed the startup to open Level & Co., an art gallery on New York City’s Upper East Side. 

At the gallery’s new exhibition, “Into Another World,” each piece of art on display is already owned by fractional investors through Masterworks’ platform. In essence, each painting is securitized, and direct buyers can engage with these pieces in a more traditional experience.

Level & Co. also hosted an opening night for the show on September 7, 2023, where people uninvolved in the art world could view the paintings in the gallery and interact with them, further building connections between financiers of different types while also increasing interest in the holdings of the Masterworks app’s user base.

Bringing virtual fractionalization into the real world

Masterworks has risen to prominence thanks to the innovative model in which it has fractionalized art investing. However, buyers who only purchase shares via an online platform rarely get to view their investments in person. Level & Co’s new exhibition has addressed this gap, and Masterworks will likely experience further positive impact as a result.

Usually, moreover, galleries host paintings from a private collection, consign pieces from dealers for a fee, or host works from artists directly. Level & Co. is the first gallery whose business model does not depend on art dealer consignments or contributions from a wealthy financier. 

Masterworks is changing this picture by hosting paintings owned by hundreds of ordinary investors. The gallery also gives the company better opportunities to exit an investment. For instance, a wealthy collector who wishes to purchase an existing painting might visit Level & Co. on an appointment basis, view a painting, and make an offer that provides fractional investors with outsized returns.

Similarly, dealers, auctioneers and other buyers representing individual clients can do the same. This move benefits Masterworks’ ordinary investors, since sales don’t have to proceed through private-only channels anymore. The gallery increases the likelihood of a high-yield sale, increasing the probability that fractional investors will experience gains from their investments.

Artist network effects

Level & Co.’s business model has a positive effect on the investment value hype surrounding individual artists. Showcasing important works in an easily accessed space gives investors a chance to experience an artist’s work in person. These interactions breed curiosity and can even lead to an investor purchasing other works in an artist’s portfolio.

For its part, Masterworks is agnostic about art genres and styles. The company aims to source pieces that will likely appreciate in value, irrespective of provenance. With Level & Co. bringing different parts of the art world together, artists stand to gain from the network effect of Masterworks choosing their pieces for its platform.

Masterworks also invests resources in educating investors about artistic movements and the impact of chosen artwork. For instance, the company compiles a detailed prospectus for each piece it offers to investors, highlighting an artist’s background, their influences, and other important information.

The company also includes past sales data and general market trends to help investors make the right decision. While these data help investors, they also open new opportunities for artists. Investors who might not find a specific piece on offer interesting can still explore the artist’s portfolio, looking for something else that might fit their tastes.

The result is an artist receiving attention on their entire portfolio, not just a few popular pieces. In essence, Masterworks helps artists and their estates to build appreciative communities, while also making the ecosystem more lucrative for everyone involved.

Redefining art investing

Masterworks made waves when it achieved unicorn status within two years of founding, and the company continues to innovate. The art investment world is now more accessible than ever, and Masterworks continues to build and strengthen different portions of it. 

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• Source: https://www.fintechnews.org/masterworks-continues-to-innovate-challenging-stale-art-finance-models/