Fractional Art

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Transcript

Building an indie business in the center of venture capital. I am Alex Edmonds, also known as supremerumham on the internet. and this is the building and in the business podcast. Okay, so today we will be discussing fractional art. So I'm going to be talking about what fractional art is how to make money from fractional art, how to value art expenses in art problems. Revenue ideas. My opinion, and a revenue reducers, as always. Okay, so let's get into it. What is fractional art. Fractional art is a segment of the art market. So the art market is buying a $10 million piece of art. And then you hold it and you flip it later. So fractional art is buying that $10 million piece of art. Well, like, like a company buying that $10 million piece of art, and then they sell shares of that art to the general public, so someone can buy $100 worth of a Banksy, right. So, um, how do those consumers make money from the fractional arm. Well, there's two ways they can make money through the secondary market, which is when, which is a second market for the art. So you buy the art shares you hold them, and then maybe you want to sell it. So you buy the fractional art for $20 a share, and maybe six months later you want to sell it for $22 Well, on the platform that you buy it from, they might have a secondary market with other consumers that want to buy that, that Banksy for $22 a share. Right, so there's that. And then sometimes the art gets sold to maybe a private buyer, or another platform. And when the piece of art gets sold at that at that new price. You're the consumers make money on that sale. So let's say that sold for 25 or $30 a share, then the consumers get that, that revenue back, right. Okay, so how do you value work. I found this really interesting because, like, okay, Banksy has pieces that are $4 million $5 million $10 million. So how do you determine the value of bank sees art. Right. So, one, one factor in the value of a piece of art is the artist previous sales. So, let's say Banksy and 2021 banks yes sold two pieces are two pieces of art sorry for four and $5 million. And now he has a third piece on the market, right. So, that might sell for four to $6 million, because that's being seized market price. Right. And then another thing which factors into the, the value of the art is maybe the artist is in the news, right. So, maybe he's in the Bay Area, and he's spray painting walls, and people are hearing about it. Maybe that's, that, that 2021 piece that's going for $6 million. Maybe it goes for seven or $8 million, because people in the art market are interested in this stuff and they're hearing about them constantly. And, you know he's in the news, right. So that's another way to value a piece of art, or another factor in the value of a piece of art. Right, okay. And then there's condition. So, you know, some art pieces, they're 100 years old, right. So, as some paint or some mediums, they might, they might deteriorate over time. But if a piece of art is deteriorated, it's all brown when it's supposed to be yellow. That, that devalues the art so if it's well conditioned, it's in perfect condition. That means the art has more value, right. And then there's authenticity. It's very common to, you know, make a copy of a piece of art. Right. So, sometimes a buyer might not buy a piece of art. That's real. It's not by the artist right so I can paint. I can paint Andy Warhol's a soup can, Campbell's soup can. Right. And I can make it perfectly. An exact carbon copy of his, his, his original right, but that doesn't get value because it's not a Warhol, original, it's a supreme rum ham original, right. So, but someone might buy. My supreme rum ham original because they think it's a Warhol, original, and, you know, if it's not authentic. Then they're paying $4 million for something that's maybe worth $500 I don't know I'm giving myself a lot of credit there. But yeah, if they find out that the Warhol original that they thought they bought is a supreme Rome hammer original that devalues that piece of art that they bought for $4 million. Right. And then, maybe, maybe Warhol, he secretly, you know, created three or four copies of that Campbell's soup can, but he never showed them to anyone, but they're in like a basement somewhere. So, if there are more copies of that Campbell soup can, that devalues the, the original one, because what gives our value is that it's one of one, buy this one artist. Right. And so, if that one of one becomes one of four. That makes it less valuable. Right. Okay, so then expenses. So when you sell something on the second dairy market, there are fees for that so you have to pay those fees. Right. And then, they call it an IPO, when they offer a new piece of art to the general public right so they're just like a direct listing, or an IPO, on the public market, or on like the NASDAQ or New York Stock Exchange. Their expenses for underwriting this IPO, right. Okay. And then this next one, I'm gonna have to read to you, word for word because I didn't get a chance to break it down so let me read this expense. The offering size equals the sum of the estimated purchase price, and the platform's anticipated painted or anticipated paying for the painting, let's say, $9 million plus approximately 11% of such amount. Approximately 10% of the maximum aggregated offering amount, or $990,000 as an upfront payment or true up payment to the platform, which compensates and reimburses the segregated portfolio of the platform that will acquire the painting for general operating costs, offering costs, sourcing and purchase pricing and costs, that is not grammatically correct. I didn't write it though, import taxes if any, an interest and commitment to the purchase the painting. Okay, so what that means is, the consumers have to pay the platform for all the work that they're doing for buying the original painting, then offering it. The operating costs of the painting. So, you know, keeping it in storage, making sure that the value, the condition does not deteriorate. Um, then they sell the painting, so they take a copy of that fee, then they have to transfer it. So all of that for this $9 million, painting, they charge $990,000 for that. So, yeah, and that that number gets worked into the price of the offering. Right, okay. So problems. Right, so I got some problems with these people and I uh you're going to hear about it. Okay, so limited supply. Right. So, as a consumer on one of these platforms, I am only able to purchase the options that are on the website, right I can't make a request. So they have a Warhol, they have Banksy they have Bosky. They have a herring. But let's say I want. I don't know another artist. Um, let's say I want to supreme Rome him, I want to supreme Rome ham I want to buy $500 worth of a supreme rum ham, painting, right. I can only buy what they're offering. Right, so I, I can't buy that. So that's one issue. And then there's knowing the true value of a piece of art. So, piece of art that I took that piece from is $909 million. That's the value of that painting, plus the fees. Right, so I have to believe that at the time of the offering. That painting is worth more than $9.9 million. Right, but how do I know that how do I know that there's someone else out there that will value this painting at $10 million. Right, I don't. I just have to hope that they do. Right. And then I read all these documents dude, I read every one of these documents that this platform offered, and they have different types of shares they have a shares and they have B shares. It's like, like a stock right you have voting shares and you have non voting shares, they, they sell you a shares which are non voting shares, so I have no say in what happens to the painting. Let's say someone wants to purchase the painting after six months for $11 million. And let's say, $11 million is not a price that I want. I wanted to go a little higher or I want to keep my shares. I want them to sell a painting for $11 million. So, all the $11 million shares, except mine, let me keep my shares right. I can't do that, they just sell the painting, and they give me back the money, plus the interest, right. So that's one thing that I, that's a problem I had, right. Okay. Um, and then there's a minimum and maximum of shares that I could buy for the painting so the minimum was. I believe $500 worth of shares, and that was so $500, at $20 a share. That was 25 shares minimum right, and then I can only buy $10,000 worth of shares. So $10,000 divided by 2500 shares so 50 and 500. Those are the min and max and if I wanted more. I, if I wanted less I couldn't, or No, I could on the secondary market so if I wanted to buy $200 worth of a painting, I had to wait three months for the painting to be offered on the secondary market for $20 Right, hoping someone wanted to get rid of their shares for $20. And then if I wanted to buy $10,000 worth of a painting, I couldn't write. So there's that. Okay, and then the platform does not take suggestions for paintings to purchase. So like I said, there's Warhol, there's Banksy, there's boss yacht, but maybe I want to supreme Rome hand painting. Um, I can't suggest that to them, I have to. I mean I could I could email support but who knows if support is gonna pass that message along, you know I'm saying, You know what I'm saying over here. Okay. Um, okay. So, another problem I had was that the. So let's say I buy a Banksy on the secondary market I buy shares of a Banksy on the secondary market at $23, and the. The painting is currently at $21, a share. Right. So, I, I bought it above market price, thinking that maybe it'll be worth a lot. What did I say 23 So let's say I think it's gonna be worth 25 At one point, or 30, even I don't know if the market price will ever reach $23 Even in my stay between 21 and 22 and then the painting that's sold off. Right. So there's a little distance, there's a little gap where I am unsure if I can ever make that money back. Right. So that's all the issues that I have. So, revenue ideas. Okay, so I'm all about revenue as you know, and I like to invest in things where I get a monthly income. So I thought of some ideas for that the first idea I had was a service to lend out these paintings for events. So, some people have events like parties or galleries, and maybe they want paintings to have their guests. Look at them. Well, these platforms could maybe lend these, these events, they're the paintings for a fee. And then, the owners of the paintings can share in the revenue of. That costs, right. So that's one idea, and then another idea I had was to someone could start a service, kind of like revenue research, but for up and coming artists. So, I don't know too much about art except for very common artists like Banksy Warhol. The other one was Basquiat. Um, but I don't know any up and coming artists, maybe there's an artist that's selling their paintings right now for $500 and people think he's gonna be the next boss Yup. Well, I wouldn't mind buying one of his arts or pieces of art, right. Maybe someone can write reports on new artists, and I would buy them and read them and maybe buy that new artists art. Right. Okay. And then another idea I had was an art ETF. So, in the stock market, there's something called an ETF, where it's by sector, where a company buys up shares of let's say, data centers, right, so there's Equinox, there's digital Realty. There's others that I can think of right now, and they buy shares of, let's say they buy 10 shares of Equinox, a buy 15 shares of digital Realty. And then they average those out. And then they sell shares of their shares they sell pieces of their shares to other people, and it all gets averaged out. Right. So, I thought someone can do that for art, they can buy a bunch of bank C's, they can buy a bunch of Bosk yachts, they can buy a bunch of Warhols, and then they average them out and they sell shares of, you know, that, that artist to people, something I thought was cool. And then another. The final idea I had was a virtual museum where they, they show all the bank says and Warhols on the platform. And people pay to, you know, get some information about them. Get a digital tour. And then, the owners of the painting get a cut of the revenue, There's like a revenue share agreement. Right. Okay, so my opinion. So before fractional art, um, art was observed art was reserved for the Ultra Rich, right, because you know that $9 million painting that I was looking at who can afford that right. Only so many people can afford a $9 million, painting, and then insure it and store it properly so that it'll be worth more in the future. Right. Fractional art breaks down the barriers, because I can't afford a $3 million, painting, but I can afford. $200 $500 of a painting, right and then I'm gonna hold it for months, years, and then sell it for more. So that gives me an opportunity to invest in art, which I wouldn't have without fractional arm. Yeah, okay. So, um, There's also one issue. It's like, how do I know that this is the real Banksy, this is the real boss. Um, and it's not forged. How do I know it's not a supreme Rome ham. Banksy, right. so that that's an interesting idea. Someone can authenticate art, I guess, or start a service to authenticate the art. And then, I don't know, charge, charge the platform, right, that would charge consumers two at the same time, I don't know. Yeah, so another thing it's like what I'm what I, what I was missing from the entire fractional art experience is generating revenue right because I can. I can buy the shares at the offering. And then I can sell them on the secondary market, but that's a one time payment. Um, I don't care about one time payments, to be honest, I want income I want monthly income from the things I invest in. So that was one problem I had. Right. And then one final thing I'm going to say about my opinion about fractional art is it's an alternative acid that can't get manipulated by one more on on Twitter, unlike the stock market or the cryptocurrency market. So, that's where I'm a big fan of it, right, and then the price doesn't move very often, the art gets appraised every quarter or every quarter and then every six months, depending on the, the lifetime of the art cycle for this purchase cycle, right. Does that make sense. Let me rephrase that, so it gets appraised. After six months, and then every quarter after those six months. That makes more sense, right. So, um, that, that, that offering price of $20 is going to last for six months, so that there's no movement, right. So that's another great thing. Right. Okay. And then finally, revenue reducers transaction fees. It this is on the internet, so there's always going to be a transaction fee, you're not going to avoid that I always talk about transaction fees, I'm actually tired of talking about transaction fees, and then there's commission for the sale. So, um, that painting sells for $11 million. And then the platform might take like a let's say a 5% fee for that sale. That's money that you can't, Sharon, right. Okay, that's all I have for this episode. Thank you for listening. Have a nice day. Bye. This was a good episode.