Fractional art investing has gone from a niche alternative investment option to the mainstream. The success of Masterworks, a unicorn investment platform startup based in New York City, has been one of the primary causes for this trend. As fine art investing becomes a viable retail investment option, more fractional art investment platforms have mushroomed worldwide.
For instance, Liechtenstein-based Artex operates as a type of art stock exchange, offering “IPOs” of popular works of art. Unlike Masterworks, Artex doesn’t offer significant data-backed insights into its choices. The UK-based Mintus is another rising competitor, but it doesn’t yet have the thriving user community or buying power that Masterworks boasts.
Artex and Mintus highlight the increased competition Masterworks faces but also reveal some compelling reasons why the latter is unlikely to lose the top spot in prospective art investors’ minds.
The first-mover advantage
The first-mover advantage is well-documented in the startup world. The first company to gain momentum in a market gets to set rules and dominate it. However, the first-mover advantage works only if the pioneering company backs its boldness with business processes that build a competitive moat.
Amazon is a good example. The company pioneered online book sales and quickly used technology to scale into other retail markets, thus ensuring its first-mover advantage remained in place. Masterworks operates on a similar platform.
While the company initially offered retail investors an alternative to art investing funds, it has long moved on to become an important node in the art investing world. For example, through its Level & Co gallery in Manhattan’s Upper East Side, Masterworks brings art dealers, wealthy collectors, and everyday investors together.
The company has embedded itself into every art investing conversation, highlighting its ability to expand and scale beyond its original objective. This gives Masterworks a way to sustain its first-mover advantage, something competitors will find challenging to overcome.
Transparency through data and company vision
Unlike some of its competitors that resemble a word soup of popular art investing themes, Masterworks relies on deep data analysis to present investment opportunities.
Every Masterworks offering is accompanied by a detailed prospectus compiled by its analytics team. The prospectus lists the artwork’s popularity momentum, historical sales, and record of similar sales. This data, tough to source in the art world, helps retail investors place their money wisely.
Masterworks’ commitment to data analytics is evident in its acquisition of Arthena, an art analytics firm using machine learning to conduct data analysis. The result is transparency in a historically opaque market, which has helped to establish trust among investors.
While data brings transparency to the platform’s investment opportunities, Masterworks uses its philosophy to illuminate other aspects of art investing. The company offers easily understood investment terms, removing any hurdles for ordinary investors.
The company does not force investors into lengthy lock-up periods, giving them a secondary market to sell shares. Its securitization process is also simple to understand, in stark contrast to competing platforms offering NFTs with complicated terms.
Masterworks does not offer NFTs yet. This could be because so much data suggests that as an investing vehicle, NFTs were a fad, as several popular tokens have lost as much as 90% of their original value. By sticking to its vision of data-backed art investment, Masterworks is making the art world less intimidating, something few of its competitors can claim.
Established culture and roots
Every company’s success depends on the type of culture and accountability it fosters. Masterworks takes its work culture seriously, demonstrated by its decision to enforce on-premise work in the face of remote work culture.
The company faces quite a few hiring challenges due to this stance. In addition, Masterworks prefers hiring employees who appreciate art and are passionate about data analysis. These fields intersect thinly, making it even more challenging for the company to hire people.
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However, Masterworks has stuck with it, preferring to build an aligned workforce rather than a patchwork of people with few common interests. The result is a lively workplace where knowledge is freely shared and hierarchies are flat.
Several members of Masterworks’ management team began as interns in the company, a testament to its ability to promote from within and enhance employee skills. This hyper-focused culture guarantees that employees understand their sector deeply and can spot headwinds before their competition does.
It also ensures a focus that Masterworks’ competitors lack. Several fractional investing platforms have begun offering art as a choice along with real estate and startup equity. These platforms are reacting to popular demand and offering potential investors a bland experience.
For instance, a savvy real estate investor will likely need additional education and data to justify an art investment. Generic platforms don’t offer these yet because they cannot compete with Masterworks’ art-oriented focus.
This ensures Masterworks automatically becomes the go-to resource for art investment data, increasing the likelihood of an investor choosing the platform. This is a great example of how work culture can result in a competitive moat.
The future is bright
Masterworks might face increased competition, but the factors highlighted in this article are just a few examples of why the startup will remain at the top of art investors’ minds. While the future is unpredictable, Masterworks is doing everything right currently and looks set to dominate the art investment world.
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