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Should art startups seek investment?

on Friday, 22 September 2017. Posted in Disruption, Analysis

Online art platforms are changing the way people collect art but is more investment bad for business?

Should art startups seek investment?

The art industry is changing dramatically. In recent years, there has been a boom of online art startups as the art world has shifted towards the internet, forcing traditional art businesses to either adapt or face certain doom. Given the growth of the industry, it’s hardly surprising that a lot of venture capital has also poured into these new business, the question is if investors help or hinder the success of these companies in the long run.

For Artsy, the online art marketplace, it's safe to say that the investors have absolutely helped the startup grow. The company was founded by Carter Cleveland in 2009 when he studied computer science at Princeton University and struggled to find art for his college dorm room and found that no platform existed to search all the world’s art. Today the venture has over 180 team members worldwide and more than 800,000 artworks on the site by over 70,000 artists. And that's in no little way thanks to the startup's investors, which include industry giants like Jack Dorsey, co-founder and CEO of Twitter; Eric Schmidt, chairman of Alphabet; Rich Barton, founder of Expedia; and Bob Pittman, co-founder of MTV and CEO of IHeartMedia. “We are lucky to have investors and advisors from across the art, tech and business worlds who have been instrumental to Artsy’s success,” says Anna Carey, spokesperson for the company.

Another relatively new company is Sedition, an online platform for artists to distribute and sell their works as limited edition videos and images that are viewed on screens and devices. Founded by Harry Blain in 2011, the firm is today funded by a number of investors who they have a close relationship with. “Other investors may be different and more challenging to work with,” says Ashley Wong, head of programmes and operations at Sedition.

However, that doesn't mean you cannot go at it alone. For instance, MyArtBroker, the platform connecting people passionate about art, hasn't had any outside investments. Instead, co-founders and brothers Ian and Joe Syer used £3,300 of their own savings to launch the business in 2010. This initial influx of capital was enough to build a simple website, develop the transactional model and work out what would actually be required going forward. However, that doesn't mean that they couldn't have benefited from outside investment. “It was a really painful way to start as it felt as though we were continually compromising,” Ian Syer says.

On the flipside, not having investors could actually become a problem. This was something that Paddle8, the online art marketplace, learned the hard way after it merged with Auctionata, the online luxury action house that would later go into insolvency. In fact, Auctionata’s chief executive Thomas Hesse, later claimed that the startup failed because it was unable to secure financing quick enough. Additionally, Auctionata has since been accused by KPMG of having its management committing severe trade violations. In the worst-case scenario, the company may not be able to continue business operations, according to the KPMG report. Paddle8 has since become independent and its sales reportedly doubled last year despite this turbulence.

The examples make it clear that online ventures are important to the art world’s future. “We are still seeing the art industry slowly coming to terms with the online market, but the idea of buying and selling art online generally is widely accepted, and adoption is growing even for those higher ticket items, like art”, says Syer.  That being said, well-established international auction houses such as Sotheby’s and Christie’s are still leading the way in e-commerce and online engagement, leveraging their brands to advantage in the online space. But to date, no one dominant player has yet emerged in the very competitive online marketplace. In 2016, the dealer sales market amounted to $26bn while online sales were at around $1bn, according to a June report by the European Fine Art Foundation. In April, insurer Hiscox found the overall value of online sales in the art market increased by 15% in the last year. Indeed, online firms seem to be doing little so far to disrupt the art market.

However, as  we are no seeing the first digitally native generation coming of age,  the market place is destined to change. And startups such as Artsy, Paddle8, MyArtBroker and Sedition are leading the way thanks to the support of their investors. Artsy would never have grown so quickly without its high-profile investors. While MyArtBroker’s growth may have been slowed down by only using private savings, it also enabled the Syers to have more freedom and independence. In other words, investments come with both more restrictions and simultaneously creating more  opportunities to grow. In the end, relevant businesses will survive if there is a market for them but many will also struggle and eventually die – that is the ruthlessness of any industry. No matter where the capital comes from, there is always a risk of the business going bankrupt. So, whether it is an investor’s money or somebody’s savings – it simply does not matter. The road to success is purely about playing into the hands of the market.

This article comes to you courtesy of Alice Grahns and MyArtBroker, the online art vendor

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