1. Startup is any young company ranging from an idea stage to an offical opening;
2. Startup is synonymous with any risky endeavor at its start.
Now, let's bust those myths. A startup, as the name suggests, is a company aiming to profiteer from realizing an innovative idea. That's how it differs from just starting a business from scratch: startup means a new product or a service which didn't exist before. Say, you decide to open a coffee shop buying a license from a famous chain — this is called franchise, or you decide to create your own coffee shop brand — then you become an entrepreneur with a unique selling proposition. But if you can come up with an idea of integrating a coffee machine into an elevator for the employees of an office centre who use it everyday - then you become a startuper.
High level of risk is an integral companion of all startups. However, when you just replicate an existing business model, your risk is mostly related to the competition when entering the market; whereas when you build a startup, your biggest enemy is creativity, it might be that the product you offer is not needed by the market or the available 'down to earth' analogues to your business solve the customers' pain more efficiently. A relatively short lifespan of a startup can also be easily explained by market terms: some die fast, failing to raise enough funds, others are quickly bought up by large strategically thinking corporations, who merge innovative ideas into their core business models. The third and the smallest group of starups will live long enough to become independent companies.
The term 'startup' became widely recognized at the start of the new technological revolution of 1990s. This time around, Artnet, the first innovative company in the world of art appeared; it can formally be attributed to ArtTech startups (ArtTech is a combination of art and technology). Like we remember from the previous article, Artnet gave collectors an opportunity to browse auction data bases, providing them with a tool to independently analyse the prices and make investments into works of art. Since then, modern technologies became the main resource for innovations in the art market: from 2000 to 2020 over 200 young companies were registered, who grew their ideas into mature businesses, a number that was reported in 2019 at Christie’s Art+Tech Summit in New York (from: christies.com).
In parallel to ArtTech, startups in other spheres — financial, industrial, scientific — underwent critical changes: large funds started considering them an asset worth investing into on a par with securities. They were bought in handfuls, but since just the fittest survived, only the most successful companies brought decent returns to their investors when sold. Of which there were just a few who became true unicorns - a symbol of an amazing breakthrough. Everybody knows the modern day heros — Tinder, Uber, Airbnb etc. With these names dominating the market, it seemed that the art market will long remain in the shadow of investors' attention.
Fuelarts was first to research investments made into ArtTech-startups and include their findings into Deloitte Art & Finance / ArtTactic report published in 2019. Next, we will provide some facts and figures with comments:
• In 2000-2019 ArtTech-startups raised $587 mln. of investments.
• In 2013-2019 the total volume of funding in ArtTech grew by 72% vs. 2000-2012 period.
• Since 2017 more than 30 ArtTech startups appeared.
• The 2020-2022 period will see a rapid growth in the number of ArtTech startups.
The research divides all the startups into four categories. The total volume of investments is split in the following way.
• Transactions (internet auctions and online galleries) - $439 mln.;
• Information (data bases, indices) — $107 mln.;
• Research (online education, machine learning) — $26 mln.;
• Collections management (logistics, storage, insurance) — $15 mln.
ArtTech startups who sprang into existence after 2017 (at the initial funding rounds), mostly fit into the Transactions category (64% of all companies use it as a main buisiness idea), other three categories get an equal share of 12% of all startups. In other words, the majority of startupers are fascinated by the transactional nature of the art market, whereas the use of technologies for better logistics and education does not seem as lucrative to them. According to Fuelarts such dynamics might have a negative side. The researches state, that the overall transactions market, meaning the art market annual turnover, in recent years equaled $68 bln. For a professional investor a $68 bln market is rather small in scale, whereas the total worth of privately owned works of art approaches a figure of $3 trillion — which can easily benefit from other services - logistics, storage, expertise etc. In other words, future generation startups must bear this in mind before approaching an investor.
Now is the time to reveal the names of previous investors into ArtTech. Fuelarts underscores that there are four groups of investors, putting their money into startups on the verge of art and technologies for the last 20 years.
• Institutional investors —38%;
• Collectors and art-dealers — 33 %;
• Technology companies — 24 %;
• Crowdfunding companies (ICO) — 5 %.
In other words — professional investors and art collectors seem to trust young companies most. The latter were driven mainly by the same logic as when people invest into works of art — by financing art startups they wanted to stay in the know of the art market or enter through this door. A difference between buying a Basquiat for $100 and investing around a $1 mln into a young technological project presented almost similar opportunities: you get a VIP ticket to art fairs and private parties as well as an invitation to a new circle of business contacts. Most probably, many also kept in mind the fact that a no-name startup in 2008 got three $500 checks from three art-dealers Gagosian, Zwirner and Acquavella. The name of the startup appeared a year later - Artsy. Since that time, leading world dealers learn about online art transactions and market trends first, as minority shareholders of the enterprise.
Further on, we will talk about the problems when launching ArtTech startups, possible solutions to overcome them, survival rates for companies, success cases and mistakes young companies sitting on the fence between art and technologies make.
This article was first published in Russian on ARTinvestment.RU