Scott Lynn (02:53):
Yeah, it’s not my first rodeo, so I’ve done this several times before. We have the good fortune of having tons of investor interest, so we really took a handful of firms that were interested in the business that I knew personally, hired Goldman. I think start to finish, it took… What do we count? I think it was roughly 40 days, which is unheard of, so it was a super fast, very selective process.

Trey Lockerbie (03:22):
And the investors that came in, are they looking at Masterworks as a play on the art market itself, or on the fractional ownership collectibles market? What was the angle that they… What was the appeal for them, exactly?

Scott Lynn (03:37):
I think the really high-level thesis that everyone is very excited about is if you subscribe to this notion that venture and private equity is roughly a $3.5 trillion asset class, and you believe that art is 1.5 trillion, but there’s 9,000 firms that help people allocate to venture and private equity, and there’s only us in the art market, you just immediately see what a huge opportunity that is, and almost to a certain extent become valuation agnostic. And I think that’s how a lot of people approached it very early, which is… I think there’s a lot of data to suggest that this is literally the largest asset class that has no investment products left. Every other major asset class has been securitized, and there’s lots of competition. So this is one of the few where we’re still in the very early days.

Trey Lockerbie (04:26):
You touched on an interesting point there about the valuation, and the fact that there’s so much money in private equity and VCs. When you’re getting above that threshold of a billion dollars, I’m always curious as to why owners choose to stay private instead of going in public. That said, Sotheby’s was once public, for example, and then chose to go private. Masterworks seems like its model would make for a great public company, constantly raising capital to buy art and things like that, and having those access to those markets. Walk us through the decision to continue to stay private, and maybe if there’s aspirations to be public one day in the future.

Scott Lynn (05:01):
It’s an interesting question for us, because we are the largest filer of public offerings with the SCC now. We file one about every five and a half days. I think where we are today, we just don’t have the bandwidth to be a public company, but we do believe that this fundamentally will be at some point in time, so it’s really more of a prioritization thing with us right now than anything else.

Trey Lockerbie (05:26):
On that note, I’m curious about the… You mention securitizing all the time. I mean, I’m curious about some of the paintings that you currently carry or own or are listed, and if possibly you would spin those off to be their own publicly-traded entity at some point, just the art itself. Some of these are entering stratospheric valuations on their own. Is that something that you could see being viable in the future?

Scott Lynn (05:50):
You mean actually having the paintings be exchange listed? You could certainly see a world where that makes sense for very expensive paintings. Probably makes more sense for a fund-type product that’s publicly traded. But yeah, we definitely think the liquidity is one of the key challenges with the asset class, so I think any additional mechanisms or features to make the asset class more liquid just allows it to be more accessible to any type of investor.

Trey Lockerbie (06:17):
And obviously, you guys are kind of building that marketplace, which I know is incredibly valuable as well, but are there other aspirations to potentially bundle up some of these pieces of art into, say, exchange traded?

Scott Lynn (06:30):
Yeah. I mean, right now, we’re working on fund products that will give people broad exposure to all paintings of the Masterworks platform, so investors don’t have to pick and choose paintings. And that, I think, will be very well received. We’re testing, slow rolling some of those products into market now, so I do think it’s interesting. Now, an ETF is an amazing product that we would love to bring to market. It really requires us to have each underlying painting be very liquid. And although we have a secondary market today where investors are trading shares and all of these works of art, the liquidity is not like an exchange-traded security where you can get out of a position in seconds. So I think that’s a ways off, but that would obviously be the holy grail-type product.

Trey Lockerbie (07:14):
What about the idea of… Mentioned these VCs getting involved. It’s making me wonder if Masterworks itself would then one day have a venture arm, for example, for, say, aspiring artists in their early days, helping them get off the ground. You’re giving them incredible exposure. You could see how you could kind of exacerbate their success very quickly.

Scott Lynn (07:34):
Yeah, it’s a really interesting question. This weekend, I was actually at a family event, and a friend of the family was talking about how her son is an artist, and how difficult it is to be an artist. And I was telling her some of the stats in the art market, like for example, 61% of $60 billion that sells every year in the art market is from the top 100 artists, most of which are deceased. So you very quickly understand just from that stat alone how difficult it is to build a career as a new artist. I think one of the cool things about what we’re doing which isn’t totally appreciated today is that if we’re able to bring billions of dollars into the art market, and as we start to allocate to more emerging artists, it does really make it much easier for new artists to enter the market if there’s kind of active people like us buying up those paintings.

Scott Lynn (08:27):
So we don’t have that product today. It’s more of a speculative product for emerging artists, but at some point, I think that’s an interesting product that I’d love to roll out.

Trey Lockerbie (08:39):
That’s awesome. So last year, I think you bought something like $400 million worth of art, you being Masterworks, and you’re on track now, as you said, to purchase over a billion dollars this year, which obviously sounds like a ton of money. But talk to us and kind of remind us about how that compares to the overall art market as a whole.

Scott Lynn (09:00):
It’s a good question. So it does sound like a ton of money in the art market in particular, because there’s really nobody like us buying at that sort of scale. But the art market today, the estimates vary, but it’s roughly a $60 billion a year transaction volume market. So a billion dollars is still… It’s significant, but it’s not over overpowering by any means. We are also starting to consider artists who are modern, like Picasso, impressionist, like Monet, this year as part of our buying strategy. So we expect to increase the number of artists that we bring to the platform beyond the 55 that we focused on historically, and then also move into some impressionist and modern categories, which we haven’t been in.

Trey Lockerbie (09:45):
Now, you mentioned that Masterworks is profitable already. I’m kind of curious. I don’t think it’s something we really went into on our first episode together, which was episode 349, but talk to us a little bit about where and how Masterworks makes money in the process of people buying those fractional shares of the art itself.

Scott Lynn (10:03):
Yeah, so our management fees are really very much like private equity or hedge funds. So we make 1.5% per year on assets under management, and then we make 20% profit when we sell the painting in the future. So that’s our fee structure, very broadly.

Trey Lockerbie (10:22):
I’m curious about that second point there about selling it in the future. So say, for example, a piece of art goes up on the website, it’s auctioned off. We all own this fractional share of it. Who then determines how it sells again? I mean, obviously, it’s kind of publicly traded now, and we’re just selling shares on a secondary market at that point. But could someone actually feasibly come in and buy up the whole painting again, theoretically?

Scott Lynn (10:46):
We restrict the total ownership, so the most anyone can purchase is actually 20%. So that technically could not happen. But we decide when to sell the painting, so we have full discretion as the manager when to sell. And that’s really important, because the art market tends to be very event-driven. So when an artist sets a price record, for example, tends to be a great time to sell into that market, because there’s a lot of hype around the artist. When there’s a retrospective covering that artist’s work, again, there’s a lot of momentum around that artist, so it’s a good time to sell. So we found that just generally, the ability to quickly respond to inbound inquiries or otherwise is really important.

Trey Lockerbie (11:25):
So when I went on to the Masterworks site recently, I was actually surprised by the lack of offerings on the site, because you would expect it to be kind of flourishing with a bunch of different options. But there weren’t really, which tells you a lot, I think, about your rigorous process to get listed on your platform in the first place. So talk to us a little bit about what goes into getting listed, and how many you kind of expect to even list in, say, a year.

Scott Lynn (11:53):
Yeah, it’s pretty cool. So now as the biggest buyer, we get offered basically everything in the art market. If you look at individual artist markets, George Condo’s a great example. I was going through the state the other day. I think we’ve been offered around 250 George Condo paintings over the past couple years. And to put that in context, if you’re a collector, and even if you’re one of the biggest George Condo collectors, you might get offered six George Condos a year, 12 George condos a year. You’re never getting offered a couple hundred. So we’ve purchased now… I may have this wrong, but I think we purchased four George Condo paintings. So the amount of work that our acquisitions team sees, reviews, analyzes, frankly rejects, I think speaks to the quality of offerings on the platform.

Scott Lynn (12:42):
And I fundamentally believe that there’s just no better way to invest in art or get exposure to the asset class outside of what we’re doing today, just because of that dynamic alone. It’s just not possible for any individual or even a small team to review the volume of work that we’re reviewing. But to your point about there not being a lot on the platform, the other dynamic that we’re seeing is the paintings are just selling out fast. So we have 1, $2 million paintings sometimes that sell out in a day, or less than a day. We had a $7 million Banksy three or four weeks ago that sold out in two hours. It is part of a problem with the platform that we’d like to build some features around, possibly previewing offerings so people can understand what’s coming up in the future rather than just relying on when it launches.

Trey Lockerbie (13:32):
Very interesting. This is a very timely discussion, because the markets have been just pummeled this year already, and they’re down big again today. It makes a lot of investors start rethinking their strategies, so to speak. And I’ve heard you mention that the S&P 500 correlated to the art market is very low. I think you said it was 0.14 at the time. Now, this could be a really good time for investors to start thinking about something like art, not only the markets going down, but the risk of inflation and a number of other macro themes. Now, your strategy, and pardon this comparison perhaps, but it’s similar to how Michael Saylor has been using MicroStrategy, in a sense that he’s stacking Bitcoin on his balance sheet. Do you consider Masterworks stacking fine art on their balance sheet as somewhat of a similar thesis?

Scott Lynn (14:22):
It’s not a similar thesis. At the end of the day, we acquire art, and we believe in the asset class because we think it just provides consistent long-term returns. I think his thesis on Bitcoin is more extreme, for lack of a lack of a better word. I mean, we’re big believers in the asset class long-term. Obviously, we have a lot of skin in the game because we have Carrey in the paintings, so we effectively have equity in everything that we’re bringing to the platform. And that is part of how we think about our balance sheet, and how we think about long-term value of the business.

Trey Lockerbie (14:59):
What is Masterworks’ impact on the art market itself? So say, for example, what’s your take on the new liquidity you’re bringing into the art market and how it affects the pricing? Does it compress pricing due to the fact that there’s more competition, or do you think it creates a premium since there’s more dollars chasing fewer goods? What’s the overall impact of this much interest going into the market?

Scott Lynn (15:22):
Yeah, it’s a really good question. It’s a question that we have thought a lot about from a research perspective specifically, and we think less about these things in the context of today. Today, I don’t really think we’re impacting prices in the art market that much. But if we’re raising $5 billion a year in capital and we’re buying $5 billion a year in art, would we be impacting prices? And I think the answer is probably yes. And then, obviously that begs the question of: Is that a bad thing? And I think our view is that art, very similar to Bitcoin and the analogy that you just used, the supply is not really increasing generally on an individual artist market level. In many cases, it’s decreasing, because people are donating paintings to museums.

Scott Lynn (16:07):
So if you bring in more demand with supply that’s either fixed or decreasing, then prices will go up. We don’t really think that’s a bad thing, so long as new investors are coming into the market. So as long as we’re exposing new investors to the asset class who are allocating to it as part of an investment strategy, we think that’s a healthy way to build an ecosystem that drives prices up over time.

Trey Lockerbie (16:33):
When you do list a new piece of work and you securitize it, how many shares do you start with when you’re in the initial offering?

Scott Lynn (16:41):
It’s really just the price divided by $20 per share, so every IPO that we do is a $20 per share IPO. And that’s actually a great way, if you go to our secondary markets, to understand how paintings have appreciated just based on how they’re trading versus $20.

Trey Lockerbie (16:58):
Has Masterworks ever securitized a sculpture piece of work, like a Jeff Koons, for example?

Scott Lynn (17:06):
We haven’t. A balloon dog is something that we’ve thought about historically. Koons’ market has been one of the more challenging markets, just from an investment perspective. So we haven’t done that yet, but we definitely would look at artists like Giacometti, for example, who’s always worked in sculpture, artists like Calder that do mobiles. So it isn’t something we’ve done, but we certainly would.

Trey Lockerbie (17:33):
You mentioned in this earlier, but Masterworks does spend a ton of resources on research. What research have you uncovered most recently that’s really surprised you?

Scott Lynn (17:44):
Well, if I just think about the past couple weeks, we try to release one research piece, at least internally, if not externally, on a weekly basis. So last week’s was really about how art responds during inflation. And it’s a hard question, because when we look at most of the data we have in the art market, at least statistically significant data, it goes back to the early to mid-1980s. So we don’t have great data from the ’80s into the ’80s, which was kind of prime inflationary time in the US, so it’s hard for us to conclude one way or another. I think our position today is that art is inflation-neutral, meaning that historically, it’s always out performed inflation, but we can’t exactly call it inflation hedge, although I think a lot of people would say that real assets generally are inflation hedges. But we haven’t technically been able to conclude that at this point in time.

Trey Lockerbie (18:43):
Now, that’s obviously more external research you’re doing, meaning outside of the platform you’ve built. I imagine you’re doing a lot of research on the platform as well. I mean, talk to us about how you kind of allocate between research going from how the platform is performing to just general market research in the art market.

Scott Lynn (19:03):
Yeah, I guess when we think about the platform, we tend to think about what are the business analytics around how are people effectively investing. We look at onboarding metrics. We look at investing metrics. One of the things that’s really fascinating about the business, which I didn’t personally expect, and we have come to just take as belief at this point in time, is when someone invests a certain amount of money, let’s say $10,000, we know that that person almost certainly, over their life, will invest roughly $90 per month thereafter. Now, for three years, we’ve at least in aggregate seen that trend continue. So we continue to see really, really good repeat investor behavior, and I think a lot of that is just people starting with small allocations as part of an overall portfolio, becoming more comfortable with the performance of the investment vehicles, and then just growing those allocations over time.

Trey Lockerbie (19:56):
Going back to the inflation hedge kind of piece, if someone were to go into the art market now, say, to diversify for inflation or something else, it would seem almost natural that they’d want to go into something kind of blue chip, like a Rembrandt or something. Now, these pieces are only gaining maybe 1 or 2%, I think, on average annually, so it’s not a huge return, but it seems like a flight of safety, so to speak. So talk to us about the risks there and how common it is for someone to actually lose money on, say, a blue chip piece of work.

Scott Lynn (20:27):
Yeah. So one of the things that I want us to do this year from a research perspective is figure out how to better communicate risk in the asset class, and there’s a few things that I find particularly fascinating about the asset class personally. One is that… And you sort of alluded to this, but one is that if you look at the performance of art by segment, and you go back in time, what you see is that contemporary performs at 14% a year, modern, impressionist modern performance between 6 and 10% a year. And then you roll all the way back in history, hundreds of years, masters appreciate at, call it, 1 to 2% a year, or roughly that of inflation. The thing that’s so fascinating about that analysis is that you don’t see a particular segment of the market in entirety that depreciates.

Scott Lynn (21:12):
So you see these appreciation rates decline over centuries down to inflation-like rates, and then the asset class exhibits basic store value characteristics. We don’t know why that is, and we find that really, really fascinating from a research perspective. So that’s one of the things that we want to spend time on, is to learn why does the asset class, at least in aggregate by segment, not depreciate. And then from an investor perspective, how do we better communicate the appreciation potential and the downside risk potential? To get back to your more specific question, we don’t see paintings sell for losses that often. And when we look at the data, what we look at is when a painting is purchased at public auction, then that same painting is subsequently sold: What percentage of time is there a loss?

Scott Lynn (22:07):
And depending on the time period that you look at, 5 years, 10 years, I think we look at 7 years as well, that percentage loss rate is always less than 10%. And then when you look at the magnitude of loss, when there is a loss, it’s generally also immaterial. And qualitatively, what you see in the art market is that if someone buys a Monet for $10 million, it’s just very unlikely that they turn around and they sell it 10 years later for $7 million. We just don’t see that happen that often. So perhaps that’s just loss aversion on behalf of very wealthy individuals who are just unwilling to take losses. Perhaps that has to do with the fact that a lot of these artists markets such as Monet of declining supply. So as they have declining supply, prices are increasing because demand is constant or growing. We’re not exactly sure, but it’s a really interesting characteristic.

Trey Lockerbie (23:02):
Now, when you were mentioning that the contemporary art appreciates at, say, 14% on average, when you go back to the ETFs, is that how you’ll carve it up, so to speak? Just an ETF for the contemporary side of things, an ETF for the blue chips? How would that look?

Scott Lynn (23:19):
Yeah, I think what we would want to do is we would want to find individual artist markets that we find interesting or investible, and we may even choose to equally weight those artists. It’s funny. In a lot of asset classes, equally-weighted strategies are generally viewed as less interesting, I think. In the art market, it’s always historically been impossible to equally weight, because it hasn’t been securitized. So if you want to build a portfolio of art, you have to buy a $50 million Basquiat, a $30 million Rothko, a $5 million Cecily Brown, a $1 million Günther Förg, whatever the composition is of the size of paintings, but it’s always been impossible to equally weigh. So now, for the first time ever, with us securitizing paintings, people can build equally-weighted portfolios on the Masterworks website. But I do think an ETF product that followed some similar methodology could be interesting.

Trey Lockerbie (24:15):
That is super interesting. And to your point, if you back test things… And they do exist now, but say the S&P 500 equally weighted instead of market cap weighted. It’s compelling, mainly because if you think about it, the market weight means that, say, a company like Apple that’s $3 trillion… I mean, could it go up another 3 trillion? Possibly, but the probabilities are that it’s going to be a drag on the overall index, which is yet to be seen. But it’s really interesting to think about it in a very similar fashion. How do you think about diversification more generally speaking in the art market, especially if you’re just getting started in it?

Scott Lynn (24:51):
I mean, diversification matters. Diversification matters, just like any other asset class. I always tell investors to assume that you’re going to be investing in 10 paintings over time. I think our research suggests that eight paintings is kind of the minimum that you would really want to invest in to gain adequate exposure, so 10 plus would be great. But we bring so many paintings to the platform now, again, one every five and a half days on average, it’s better to just wait over time and find the right opportunities.

Trey Lockerbie (25:24):
Now, I just came up with a merchandise idea for you, which is a 10-hole punch card. So for example, Warren Buffet used to say that you should invest like you have a 20-hole punch card and you can only buy 20 companies. So you’re saying 10. I’m even more impressed, so maybe you should sell that on your site. We can keep track. Speaking of Buffet and another billionaires, I know that Steve Cohen, for example, is a big art collector and has, I think, over a billion dollars worth of art, which is staggering. What would it take for a piece of art itself to become worth over a billion dollars? And are we there yet? Are we getting close to it?

Scott Lynn (26:00):
Oh, yeah. I mean, I think we’re really close to it. So the most expensive painting ever was this DaVinci painting, which sold for $450 million. And that was, I think, an unexpected result. I don’t think really the art world expected the painting to sell for quite that much. But I guess from my perspective, and obviously I’m biased, but I don’t think it would be that surprising for a painting to sell for a billion dollars. Clearly, if the Mona Lisa were up for sale, that would sell for significantly over a billion dollars, so those paintings exist. I think the thing that’s so surprising about the art market when people hear that a painting sold for $450 million is not necessarily the price tag. There’s lots of things that are $450 million. Bridges cost $450 million. Buildings cost $450 million.

Scott Lynn (26:45):
The difference is that in the art market, you really have one person buying that painting for $450 million, which is staggering. And every other asset class, there’s consortiums of people that buy these very expensive things together. So I think our view is that as these assets become securitized, it will be easier for some of these paintings that are very valuable to find buyers in the billion dollar plus range if they’re collectives of investors.

Trey Lockerbie (27:14):
Going back to the correlation a little bit more, I’m kind of curious, because what you said just struck something for me, which is if it’s uncorrelated to the S&P 500, but also correlated to, say, the wealth effect, as I understand it… When we were studying wine, I look at it in a similar way, where the price of wine kind of tends to go more correlated to the markets it seems, because it generates this wealth effect, and people can then leverage or sell or whatever, and create liquidity to diversify into something like art. So with the markets maybe entering recession territory, we’re not sure yet, do you think that will have a drag on the art market just generally speaking?

Scott Lynn (27:50):
Well, I think recessions in general are always problematic for every asset class, so you just have to say that broadly. But if you look at the correlation between art prices and the S&P, as you mentioned, historically it’s been negligible. And what we saw even during COVID was that art prices not only increased, but increased at rapid rates. I mean, we saw in the depths of COVID, in March of 2020, something like 20 artist markets set price records. That’s 180 degrees opposite of what you would expect. And I think the reality is for better or for worse, the top 1% on a global basis just wasn’t impacted by COVID, arguably benefited. I do think that our prices are correlated to the wealth effect, as you describe it. And as long as there’s more billionaires being created, and as long as the people that are buying art are getting wealthier, we continue to expect prices to go up.

Trey Lockerbie (28:49):
You mentioned that the Mona Lisa would probably fetch a billion dollars or more easily. Why does someone like the Louvre not securitize it? Maybe through you, maybe they could leverage your platform and sell even a piece of it to fund other activities or other art purchases. Has anyone approached you about that?

Scott Lynn (29:07):
It’s interesting. We had during COVID the contemporary art museum in the Netherlands. I think I’m getting the name specifically wrong. The museum in contemporary art in the Netherlands was having financial problems, and we went in and we agreed to buy a Banksy from them. And then we turned around and we lent the Banksy to them, so you can go and see that Banksy today, still hanging on their walls. Now, at some point that painting will sell, and investors will get proceeds, and the painting will have to leave the museum. But I do think it’s an interesting strategy for museums who want to raise capital, retain the painting over the next several years, potentially maybe have a right of first refusal if someone does make an offer to buy the painting for the museum to raise the capital and continue to hold it internally.

Scott Lynn (29:58):
I mean, there’s so much art that’s trapped up in museums, and frankly so much in storage that’s never even displayed, that it does seem like at some point museums should be more rational about de-accessioning. I think there’s just always been concerns about the museum’s role in society and selling works of art that should belong to the public.

Trey Lockerbie (30:22):
On the topic of galleries, you have a gallery in Soho. Is that just overflowing at this point with art? And at what point does… Are you going to continue to open up more and more galleries to make it more like a museum aspect across the country? What’s the strategy there?

Scott Lynn (30:38):
It’s a good question. We get asked this question all the of time by investors, so I prefer not to answer it right now, because I don’t want to commit to anything. We do have a gallery. We actually moved offices, so we’re no longer in Soho. We do have a gallery at our new office space in Brookfield Place, kind of in downtown New York. I mean, we bring art in selectively. The majority of art still in storage. It’s very hard to display the volume of art that we’re buying. But one initiative this year is to frankly get better at building relationships with museums or institutions, and trying to let more paintings live in public spaces.

Trey Lockerbie (31:19):
All right. So I’m really eager to talk to you about the metaverse, because last time you and I spoke, the Beeple had just sold for $69 million. It was really the first NFT to do something like that. But NFTs, even at that time, weren’t really being taken all that seriously. I’m not sure they should be even now, but I’m wondering if your mind has changed on NFTs in any way.

Scott Lynn (31:43):
Our thinking is definitely evolving within NFTs. I think our position is probably still the same, but I’ll walk you through, I guess, how we think about it today. So when we think about art or any other asset class, we think about it very fundamentally, and we ask ourselves two questions. One, can we demonstrate that it beats inflation? And two, can we demonstrate that it lacks correlation with other asset classes? That’s kind of finance 101. Should something be included in a portfolio? And they have to meet those two criteria. And I think the challenge that people always forget with NFTs is that sure, they’ve shot way up in value. They actually collapsed, for those who remember, after they shot up in value, and then they subsequently shot up in value again.

Scott Lynn (32:28):
We don’t see that as a predictable trend line. We see that as highly volatile, so could be interesting to speculate. I don’t personally know how to speculate on that market. Our team doesn’t have that experience. When you think about the second point of correlation, I do think this one is changing. So I think historically, we would’ve said NFTs are correlated to Ethereum, which is correlated to Bitcoin, which is correlated to public equities. We haven’t looked at this recently, but it does feel like that correlation dynamic is improving, that NFTs are less correlated to Ethereum now than they were many months ago. So I think our view is that it’s still early. As NFTs evolve, as we see more predictable price increases, perhaps it’s a strategy we could consider, probably a strategy we would consider as part of a fund rather than specific individual investments, just to reduce the risk of the volatility. That’s how we’re thinking about it today.

Trey Lockerbie (33:31):
Now, for someone like you who’s put in real work to legitimize your products and to legally securitize the pieces of art… I think it took you over a year just to securitize your first one. Does the opaqueness of the NFT industry bother you at all? The fact that it just seems very questionable, I guess, is a good word for it.

Scott Lynn (33:54):
So I think the truthful answer is yes, and that’s a personal opinion more so than a Masterworks opinion. But I think the challenge that I have personally with crypto is that it’s entirely unregulated. And regardless of your perspective on regulation, and I’m generally conservative when I think when I think about things like regulation, but in securities, there has to be some regulation. And in crypto, there’s really none, so you see major players influencing markets in ways that just hurt retail investors. I do think that’s fair that you have to always be very cautious with a lot of the data that you see in crypto markets, because it is highly manipulated by small numbers of people.

Trey Lockerbie (34:44):
Now, I noticed that one of the VCs that came in on your series A is focused on the Web3 tech world. Are there plans for Masterworks to somehow play a role in that new innovation of sorts?

Scott Lynn (34:58):
Well, I think one of our blind spots continues to be this NFT space. So we did kind of let Michael Novogratz and the Galaxy crowd come into the fundraise with the thought that they’re much smarter than we are on crypto and NFTs. And we continue to explore that with them. We’ve got a meeting next week with them to continue to talk about it. So I think our view is that we want people around the table that understand things that we frankly don’t understand, and that was really why we brought them in.

Trey Lockerbie (35:30):
And going back to galleries, could you see a world where there are galleries with digital TVs on the wall displaying NFTs at some point in the near future, in the physical world?

Scott Lynn (35:42):
Yeah. I mean, you could. One of the features that we’re contemplating right now, which I personally think would be really cool, is individual user profiles at Masterworks, where it’s www.masterworks.io/scottlynn, and that effectively displays your art collection. And then you can click and go into a virtual gallery to see your art collection. You can share it with friends. You can keep it for yourself. But we’ve done this with a handful of paintings, and while it seems like a bit of a, I don’t know, kind of Web.3 feature on the surface, it is really interesting to see paintings at scale that you’ve invested in context with one another. Frankly, some of the paintings that people are investing in are giant. They’re 10 feet tall and 12, 13 feet wide, and people don’t realize that until they see it in more of a virtual environment or the real world. So I think there are features like that that could be pretty cool, and frankly, relatively simple to implement.

Trey Lockerbie (36:42):
Yeah. I imagine the quote unquote “community” aspect of Web3 could be really interesting for Masterworks, because you can find communities of people who have similar interests. Say, for example, they might all own a Basquiat, or the same Basquiat if they have a fractional share in it, and that could really bring people together in some aspect. Have you considered that as part of this development as well?

Scott Lynn (37:04):
We have. And we also think about those kind of… We refer to them generally as lifestyle opportunities. We’ve thought about this in the real world. I mean, we now have, I think, 5,000 plus investors in New York City. Feels like we should have some venue, gallery, restaurant, members-only club that people can come and see these paintings. I mean, we’ve raised whatever, over $100 million dollars from people in New York City alone. It would be great to do something in the real world where they can experience what they own.

Trey Lockerbie (37:39):
I’ve been really eager to talk to you about this, and I don’t know if you followed it at all, but there are these things now called DAOs, decentralized autonomous organizations. There was this one that raised, I think, $45 million within maybe a day or two to then go and buy this copy of the Constitution. It was called ConstitutionDAO, and it got a lot of traction, a lot of press. And very transparently, to their credit, on their website, it talked about how you weren’t really buying a piece of the Constitution. You were buying what was called a voting right, essentially, on where to park the thing basically. You would have some say as where to put it. And it just raised a lot of questions around who actually owns the piece of art once… It almost, in that sense, felt a little bit like a Kickstarter campaign for somebody to go then buy this thing. Talk to us about how Masterworks is different from that.

Scott Lynn (38:29):
I mean, at the end of the day, there’s a lot of these DAOS or DAO-like concepts, I think, that are trying to provide some lifestyle component or some interaction with the object without actually having ownership. And we’re fundamentally an investment platform. I mean, our view, again, is that this is the largest asset class that’s never been securitized. Characteristically, it historically has outperformed public equities. It has negligible correlation. It deserves a role in a portfolio. I think when we think about our measurement of success, it’s 10, 20 years from now, investors hold a couple percent of a portfolio in art. That’s very different than how the crypto world is functioning today. I’m not sure why people are spending millions of dollars on tokens to grant them voting rights or access to see something. If I’m spending millions of dollars on something, I want it to be an investment and have intrinsic value.

Trey Lockerbie (39:29):
Yeah, I agree. Now, you did say your team, they’re not experts, say, on this NFT space yet. But have you seen any comparisons in that space that do make sense to you, as far as the valuations of a certain piece of art or the scarcity, so to speak? Or is there something there that you’re starting to see that says, “Okay, yeah. I could see why that makes sense”?

Scott Lynn (39:50):
Unfortunately, it’s really the opposite. So when we think about cultural significance, and I think that’s the right way to characterize your question, in the traditional art world, we think about three different things, which are all quantifiable. One is: Which museums collect that given artist? One is: What other important artist does that artist exhibit with? And then one is: How global is the demand for a given artist? So obviously, with NFTs, NFTs are global by nature, so I’m not sure that one’s really relevant. The other two I struggle with a bit more. I mean, if you look at historically who the taste-makers are and who decides what is culturally significant, museums play a very large role in that. And museums really haven’t accepted, I guess, for lack of a better word, NFTs generally.

Scott Lynn (40:40):
So we don’t see curators or critics from that world stepping into welcoming NFTs or putting together exhibitions on NFTs yet. That could change, but yet we haven’t seen it. So I think those are the signals that we’re looking for. When do institutions really start to buy NFTs? When do they start to build shows around them? From an artist perspective, what are the NFT artists that are doing things different, that are doing things interesting, unlike other artists? I mean, there’s a lot of these NFTs that I look at that are totally underwhelming. They look like they can be done by a third grader. Of course, people say that about our paintings.

Trey Lockerbie (41:19):
It’s subjective.

Scott Lynn (41:25):
$20 million [Bas 00:41:25] gets to the platform and people say, “Oh, my kid could do that.” So maybe I’m now that person, but that’s how we think about it, I guess.

Trey Lockerbie (41:32):
Well, given that there are now all these billionaires and gazillionaires in the crypto space, you even have 15-year-olds in the NFT space that are making millions of dollars now. If you thought about getting them onto your platform, have you considered accepting things like Bitcoin or Ethereum, just to convert onto your platform for ownership of a piece of real work?

Scott Lynn (41:55):
Yeah, we do accept crypto via BitPay, so we take crypto as a payment method. It’s interesting. With a lot of crypto people, we just don’t see them diversifying away from crypto. I was talking to one of the heads of one of the largest private banks in the world, and he was talking about a lot of new clients that they’re getting that are all crypto billionaires, and how they just can’t get them to diversify away from crypto in any way, shape, or form. And on a smaller scale, we see the same thing, which I think is a little bit unfortunate, because… I don’t know. Personally, I’ve lived through three financial crises, and I think until you live through one, you don’t totally appreciate the need for diversification. But most people that have created wealth in crypto really haven’t seen that dynamic yet.

Trey Lockerbie (42:46):
One maybe comparison that I thought I would share with you that maybe I want your opinion on is the fact that you mentioned Monet is, I think, the best-selling art. It was certainly the highest bid, the $450 million piece of work that sold, but I think in general, he’s one of the top-selling artists in the world, and the question is around awareness. So when you think about the value, you would… It’s easy to think about scarcity, but if you think about Monet, his paintings are printed on posters that are sold in Urban Outfitters. I mean, they are everywhere. They’re ubiquitous at this point, and so there’s a lot of awareness about him. And even though there are these really cheap replicas or facsimiles of his art distributed around the world, it doesn’t seem to distract from the value he has of his real works. And in the same way, the fact that an NFT could be a JPEG and distributed, do you see a correlation there between awareness of an artist and value, even though the actual work could be distributed in a lot of different ways?

Scott Lynn (43:52):
It’s an interesting question. We’ve never been able to measure that, but I have to believe it has an impact. I mean, other artists that we see a similar dynamic with are artists like Kaws who has a huge Instagram following, really became popular through Instagram, and that’s helped him build his market. Monet interestingly is one of the very few impressionists who we consider investible. He significantly outperforms most other impressionist artists, and perhaps that’s why his brand continues to just live on much larger than other artists. Van Gogh would be another example, but he painted far fewer paintings. I mean, we haven’t quantified it, but it seems like that would be the case.

Trey Lockerbie (44:42):
That’s interesting you haven’t quantified it. So even looking at Google Trends or something, just really back-of-envelope stuff, would you be looking into the overall internet interest in something like a certain artist?

Scott Lynn (44:54):
Yeah, it’s funny. We spent a lot of time with Google Trends data. We’ve never been able to really correlate increase in Google Trends with eventual increase in prices, and an example is the Banksy sale where the painting shredded. So that was the all-time peak when people were searching for Banksy, and couldn’t figure out how this work of art shredded itself a couple years ago, and that really was just kind of general retail interest, but had nothing to do with his market or prices.

Trey Lockerbie (45:25):
Now, does your platform inform participants about how many works are actually publicly available from a certain artist? Because I think that’s such an interesting metric. Even the DaVincis, I think there was two that aren’t held by museums of that one piece of… They’re just so rare. I feel like that’s such an important metric if you’re considering buying into an artist. Is that displayed on the website?

Scott Lynn (45:47):
It’s not displayed on the website. It’s a metric that we are going through painstaking effort to collect across all these artist markets internally. It’s very hard to collect, because you have to understand how many paintings the artist painted to begin with, and then throughout time, you have to track declining supply by paintings going into institutions. So individual artist markets can take weeks on their own just to collect data for one market. But it is something we look at internally, but we don’t share it once we collect it.

Trey Lockerbie (46:19):
All right, last question about the metaverse. So Masterworks comes in and democratizes access to these unbelievable works of art, which is so cool, but the Web3 aspect is all about decentralization. So is there a world where Masterworks itself is disrupted because artists are now interacting right with the participants or investors directly just on a blockchain somewhere?

Scott Lynn (46:49):
I think that’s really NFTs. I mean, when artists create NFTs, they can sell them directly to someone via the blockchain. Now, I can safely say that from being in the art market for a long time and knowing lots of artists, many artists struggle with all of the commercial aspects of the art market. They’re very good at painting paintings, but they don’t know how to price them. They don’t know how to find collectors to buy them. So they work with galleries, and galleries really have taken on that role for over 100 years. So I don’t know if that’s a problem that blockchain solves. It clearly solves the ability to just complete the transaction, but I think in terms of kind of representing the artist, communicating the story, finding the right collectors, building out museum interest, building out collector interest, there’s probably still an intermediary that’s required for an artist.

Trey Lockerbie (47:46):
All right, Scott, I love having you on this show. I always learn a ton, and this did not disappoint, so thank you so much for coming on again and especially entertaining my thoughts on the Web3 space. All right. For those looking to get interested in this maybe for the first time, what are the best resources that you would recommend either through your platform or otherwise before they get started?

Scott Lynn (48:07):
Yeah, so you can go to Masterworks, www.masterworks.io, create an account, schedule a call with our membership team. Our membership team walks you through suitability, talks about how you’re investing today, what your risk tolerance is, makes recommendations around specific artists, how to think about art as part of your overall portfolio. It’s really the best place to get started. They can point you to third-party resources as well. Citi does some great research on the art market. Our research team partners with a lot of other private banks. Some of that is linked to on our website. But yeah, I would just start slow, start small. Diversify over time is really the right way to get involved.

Trey Lockerbie (48:45):
Scott, really appreciate the time. Thanks for coming on the show. Let’s do it again.

Scott Lynn (48:49):
Thanks for having me.

Trey Lockerbie (48:50):
All right, everybody. That’s all we had for you this time. If you’re loving the show, please go ahead and follow us on your favorite podcast app and be sure to leave us a review. We would really appreciate it. We’re also trying to continuously improve this show, so give us feedback. You can find me on Twitter @TreyLockerbie. And if you’re trying to navigate the current markets, I highly encourage you to check out the TIP Finance tool. Simply Google TIP. It’ll pop right up. And with that, we will see you again next time.

Outro (49:13):
Thank you for listening to TIP. Make sure to subscribe to Millennial Investing by The Investor’s Podcast Network, and learn how to achieve financial independence. To access our show notes, transcripts, or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.