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Reimagining Art Access and Ownership with Scott Lynn, the CEO and Founder of Masterworks

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People argue that art can be many different things. Art is beauty, for its own sake. Art is commercial… or not. At its core, art is disruptive. 

 From Monet to Banksy, art challenges the status quo; it provokes people to feel and think. It involves activating the imagination. Andre Breton, one of the founders of surrealism wrote in his 1924 “Manifesto of Surrealism: “The imagination is perhaps on the point of reasserting itself, of reclaiming its rights.”

 Imagination corresponds to change. To change the world, artists first have to see it differently and then manifest that into their mediums. The same thing is true for entrepreneurs, and for  companies. The key is training the mind to be comfortable with change. 

 For Scott Lynn, the CEO and Founder of Masterworks, being comfortable with change and constant iteration is much more important than execution in building a new business. And Lynn used this philosophy to take on an antiquated market geared for the ultra-wealthy — the art world. 

 Masterworks acquires pieces of art, turns them into securities through public filings with the SEC, and then presents them as products to investors through its platform. To find out how this lover of art provided access for many art investors who never had that opportunity before and how he digitized the art market, tune into Business X factors.

Main takeaways: 

  • Create Luck Through Iteration: Innovation and iteration go hand-in-hand. In fact, many inventors have a cupboard full of failed projects or prototypes. Failure is not the end of the story, it’s just another step forward. Initiatives that don’t work create a building block for future success. Entrepreneurs should iterate like crazy because the probability of success increases with every attempt. 
  • Find A Gap: There are erroneous assumptions in many industries. An example of this is how the American automobile market assumed in the 70s that it could not face competition from Japanese automakers. Some markets may appear to be impenetrable as they have been operating in exactly the same way for decades or sometimes even centuries. But new entrepreneurs can find gaps in old industries if they know how to look. Keep up with changes in regulation and legislation, look for redundant middlemen, search for those industries with disgruntled customers or copy a gap that somebody else found in the market and do it better. 
  • Make It Easy To Understand: Sometimes, if what you’re doing seems complicated at first blush, people will instinctively shy away. You have to ease people into new ideas by making them easy to understand. Try comparing what you’re doing to a market or idea that already exists, or relate your idea back to something commonplace so that you don’t lose people’s interest before even starting your pitch.

Key Quotes:

“I think what I’ve realized over the past several years is that execution is fine and it’s important, but strategy and constant iteration is much more important. if you’re doing the wrong thing, it doesn’t matter how good you are at doing the wrong thing you’re still doing the wrong thing, right?  You have to find industries, or pockets of industries, that don’t have a lot of competition where you can go in, you can be totally differentiated, and you can capture a ton of value.”

 “Sometimes as an entrepreneur, you’re just kind of sitting around and you have this aha moment where you’re like, wow, there’s a one and a half trillion-dollar asset class that’s sitting out there, that’s outperformed public equities, that’s uncorrelated to other asset classes and nobody’s ever built an investment product for it. We like to help people understand this by comparing it to venture and private equity, which everyone knows. We all know people running venture firms, but art is half that size and there’s nobody outside of us doing anything in it.”

 “When you look at Sotheby’s and Christie’s, the two largest auction houses in the art market. Sotheby’s is 275 years old; Christie’s is 250 years old. Public auctions in the art market had been happening for centuries, but for whatever reason nobody’s ever really built an investment product for the asset class. To me, it was obvious. Why someone else hasn’t done it, I don’t know.”

 “I think the art market created this entire infrastructure of not being accessible. If you walk into a gallery in Chelsea, if you walk into a gallery uptown in New York city, most of the time people don’t even come up and talk to you. It’s just a weird industry that caters to the handful of ultra-wealthy people. And now we’re taking these paintings and these objects that a lot of people have never even seen before and just making it more accessible.” 

 “When we started the business, the art market had never been digitized. So, what that means is we literally went out and we located and found and purchased paper auction catalogs, going back to the 1950s, along with the price lists that they would distribute after the sale ended for how much things sold for, and these prices are crazy, right? Their price lists are like manually typed out price lists that they would hand out in 1953, after an auction ended to everyone who was in attendance.”

 “We didn’t actually know how to securitize a painting other than to take an individual work of art and file it as a public offering, just like Uber goes public. We didn’t know if the SEC would necessarily buy into the fact that an individual painting can be a public offering for a whole, whole host of reasons. Today, we’re launching one of these vehicles every week. We’re the largest filer of IPOs with the SEC, but we didn’t know that back then. So, it took us a year and a half to get the first investment vehicle through the SEC.”

 “The very first offering we did was this Andy Warhol, Marilyn [Monroe] reversal painting. At the time we didn’t know how much more Warhol’s market was actually appreciating. I think the hardest moments of the business were just those very early days of getting the first investors in. Our minimum was a $20 investment… We just kept iterating on the funnel, iterating on positioning, figuring out how we really market the asset class.”

 “The thing that’s interesting is that a lot of people think that public equities and other asset classes are just too hard to understand…But analyzing a painting is much easier. It’s much more straightforward. It’s kind of like analyzing a piece of real estate. You’re looking at comps. You’re looking at how those comps have appreciated historically. So, I do think we’re also just attracting a new type of investor who may not be a traditional, self-directed retail investor to the asset class as well.”  

 “We have trading markets where you can trade shares in individual paintings. We’re just now building out teams to sell products into the investment advisor community. It’s still so early. We could work with this business for 20 years and still not make a huge dent in just the total size of the market and the asset class.”

Bio:

Scott Lynn is the Founder and CEO of Masterworks, the first platform for buying and selling shares in iconic artworks. Before founding Masterworks, Lynn was the Founder and Chairman of Paybility that has advanced more than $1 billion in capital to e-commerce sellers. He also started V2 Ventures in 2004 and served as CEO, raising more than $250 million to build or acquire companies in the advertising space. Companies include Adknowledge, Miva (sold), Hydra (sold), Super Rewards (sold), Adparlor (sold), Giant Media, ReachMobi, Amply, Sellozo, Pushly, and more. At the age of 15, Lynn built one of the most popular intergames with the “Punch the Monkey” banner ads and he was CEO of a company with about 130 people when he left school.

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Episode 29