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The Deal of the Art: Venture firms sketch out art-investment strategies

VCs have the means to appreciate the finer things in life. So it’s probably a safe bet that at least one or two have an original Picasso or Warhol hanging on their office walls.

And beyond bragging rights, owning one of these greats is probably a good investment, especially given that Da Vinci’s Salvator Mundi just sold for a staggering $400 million (plus a $50 million commission).

So where there’s artful opportunity — and risk — there’s venture. A number of startups at the intersection of art and technology have recently attracted some significant venture funding.

Take Artsy. This online platform for discovering and collecting art recently raised $50 million from Avenir Growth Capital, L Catterton and Thrive Capital, among others.

The pain point that Artsy is treating is that to date, the fine-art market has been inherently local. The tens of thousands of galleries worldwide typically interact with a relatively small, relatively local clientele. Often, they don’t know who is interested in the artists that they show, and opportunities to reach a broader client base are limited.

Artsy’s technology more efficiently connects buyers and sellers of fine art and creates a central marketplace for art. Instead of trying to disintermediate current players, it partners with international galleries, auction houses and art fairs to expand the overall market.

Michael Farello, a managing partner at L Catterton who participated in the deal, notes that of all the people who have the financial means to collect art, only about 2 percent actually do.

“If you look at that other 98 percent, it’s largely a function of confidence and knowledge, especially around things like valuation and liquidity,” he says. “Over time, technology can help on all those fronts and give confidence to a broader set of individuals to enter the art world.”

The data seems to back him up. A survey conducted by Invaluable, an online art-auction house, found that 48% of U.S. consumers appreciate art and 34 percent say art is a good long-term investment.

Those numbers also reflect a huge untapped opportunity in the space. Today, the global art market is valued at $45 billion annually, according to the European Fine Art Foundation. Yet only about 5 percent of all art sales occur online. That’s below the ecommerce average of 11.7 percent of total retail sales, Internet Retailer says. And it’s even deeper below categories like fashion, which is nearing 25 percent online penetration, Goldman Sachs estimates.

“Art is a massive market. There are not many markets of this magnitude where technology has not been brought to bear,” says Farello. “So a lot of people are starting to eye the market and recognize that technology can help. Players are coming at it from different perspectives and business models, but there is suddenly more activity in the sector.”

So why art and why now? “This might sound like ‘no duh,’ but it really comes down to bigger, faster pipes and better data,” says Kira Wampler, CEO of Art.com, the internet’s first and arguably most successful art startup, which has raised about $56 million in funding from Stripes Group and Polaris Partners.

“With art, you want to see big, beautiful images online, and you want to be able to see what it will look like in your home or matched against different color schemes,” says Wampler.

“That requires big payloads, so the more bandwidth and processing speeds you have, the easier it is to deliver that experience to consumers. We are finally getting there today. That experience is critical to art because you fall in love with it visually.”

She adds that big data is making it easier for companies like Art.com to build recommendation engines and connect customers with the art that resonates most strongly with them.

“We have a library of a billion images, along with 18 years of customer data to apply to that,” she says. “So there is an extraordinary opportunity to grow the market with this data.”

Irena Goldenberg, a partner at Highland Europe, agrees that the barriers to buying art — both offline and online — are considerable. She says the process is fraught and complicated, from not knowing where to find the artists you love or discover new ones, to not being able to visualize how their pieces will look on your wall.

“All of those friction points haven’t really been addressed, let alone solved, by Amazon or Etsy or even Houzz,” she says. “It’s precisely that inability to sort through and filter your choices, which is why people so often end up either at Ikea or with bare walls, or else in a tiny boutique that they happen to stumble across on vacation.”

That’s why her firm led a €14 million ($16.9 million) Series B round in Juniqe. The three-year-old startup operates an online marketplace where it sells a curated selection of artworks by independent artists. The platform enables emerging and established artists to share their work with a larger audience, while allowing consumers to access fine art at affordable prices.

“What is different about Juniqe is the ability to create a destination that offers smart curation online, with technology enabling people to visualize how pieces of art would look around the home,” said Goldenberg. “In Juniqe, we saw a company that could deliver very high quality affordable products and the ability to inspire people with a highly curated selection of around 500 artists.”

A Juniqe competitor is Twyla, which raised $14 million, led by GV. The company aims to give everyone direct access to exclusive artwork. Twyla has partnered with more than 100 top contemporary artists, who create pieces exclusively for the site.

Of course, not every art startup will survive. The landscape is already littered with those that have come and gone.

Artify.it, which secured $800,000 in seed funding from Peter Thiel and others, raised eyebrows with its Netflix-like approach to art. For a monthly subscription fee, consumers could browse works on the site, choose their favorites, hang them on their walls for a while and then send them back for new pieces. But Artify, along with similar startups like Artsicle, have shut down.

Electric Objects is another cautionary tale. The startup sold a digital picture frame that could rotate through thousands of original artworks. Customers could access a library of 20,000 pieces uploaded by the company’s artist community. Electric Objects was acquired by Giphy, which promptly shut down its hardware business.

But another startup, Meural, recently raised $5 million from Corigin Ventures for its take on the digital art frame, which can display up to 30,000 different works. Along with its high-tech frame, Meural offers a $39.95 annual membership that gives customers unlimited access to the company’s art library, so they can change their wall art as easily and as often as they change their clothes.

Claire Fauquier, a principal at Corigin, says Meural appeals particularly to millennials, who are actively discovering and buying art digitally.

“The way art is sold and consumed traditionally isn’t the way millennials are used to transacting,” she says.

“Millennials are tech enthusiasts, they are more transient, and they are very expressive. They want to show off their personas in a constantly changing way. Meural, through the use of technology, can address all those things.”

The one thing the art market is missing is a massive exit. Investors in the space see some natural acquirers, including large auction houses like Christie’s and Sotheby’s, or even a tech giant like Amazon.

After all, if Jeff Bezos can buy Whole Foods and the Washington Post, a prosperous art startup could fit nicely in his collection.

Tom Stein is a Palo Alto, California, contributor. He can be reached at tom.stein@yahoo.com.

Photo of couple examining dollar in frame courtesy of Comstock Images/iStock/Getty Images.