McNally Jackson Picture room
The Apartment by the Line
Little Paper Planes
We recently discussed the proliferation of forged artworks in today’s art market, a billion-dollar industry that could be headed for troubled times due to an increasing unwillingness by art experts and authentication committees to certify the validity of an artwork.
Much of the discussion surrounding the art market today is its inaccessibility to the general population, and the amount of forgeries currently circulating in the art market makes the game that much riskier. Middle market investors may shy away from entering the art market because of the lack of certainty in purchasing authentic artworks. Additionally, while there’s a major bubble for investors operating in the high-end market, it’s the middle market that’s going to see the most growth in the coming years – consider that the proliferation of galleries showing young, up-and-coming artists is only growing from year to year. But if there are major hurdles to collecting – like a lack of authenticity or knowledgeable experts willing to appraise and predict the future of the art market, then the art market could experience some major losses in the years ahead.
A young woman has an idea that just may usher in a new era of investing in art. Madeleine D’Angelo studied art at Harvard and spent years working as an analyst for fine art institutions, tracking trends in art collecting. Realizing that the art market is a multifaceted, sometimes duplicative and often inaccessible world, she decided that the best way to change that market was to bring it into the 21st century.
D’Angelo created Arthena as a type of crowd-funding arrangement for people interested in collecting art. “There are millions of potential art collectors who want to be a part of the art world, learn about art, and be able to connect with leading galleries, curators, and advisors. Many of them don’t know how to get started, or how to become a collector,” Arthena’s website states. D’Angelo’s goal is to capture that public and thereby make the art world more inclusive, user-friendly, and engaging.
It seems that D’Angelo’s project has tons of promise – Arthena recently raised over $1 million in seed funding, after D’Angelo graduated from the AngelPad accelerator. Arthena is currently in the process of completing its first set of funds and hiring employees to manage business development and sales activities.
But how does Arthena work, in principle and in practice? What are some of the challenges Arthena may face? Is crowd funding in the art market any safer than going it on your own?
How does Arthena Work?
Arthena partners with experienced art experts in order to create each collection, which is set up as a fund and governed by SEC regulations. The expert curates the purchases based on their viability and projected growth within the market – they’ll choose artworks by undervalued, modern artists who are producing works that could rapidly appreciate in value and have a significant margin of growth potential within five years, the length of an investment in any one fund. Each collection will have numerous works, and the minimum investment for any collector is $10,000. Thus far, Arthena has at least four collections completed, ranging from “Emerging European” to “New York Artists Post-1950,” each containing five to ten works. Once you’ve bought into the collection, your capital goes up as the value of the works go up relative to your investment.
Arthena’s model is certainly a revolutionary concept in the existing art market – most collectors are used to instant gratification, keeping their investment right where they can see it when they hang their prized works in their homes or galleries. Right now, the works an Arthena collector buys into are kept in fine art storage and loaned out to museums and galleries, but the company is developing a program for loaning the works to the investors so they can display them in their homes.
Although investors in collections may not be able to see their artworks on a daily basis, they will be able to track their investments in the digital space: Arthena’s team of analysts report performance of the pieces on a digital dashboard, providing constant updates about the performance of an artist’s work in the market.
It’s important to note that a collection can only be purchased once the fund has raised the total cost of the collection – meaning that an investor’s cash will only be accepted once the entire collection has been funded. Once the collection is acquired and reaches maturity, five years after the initial investment, Arthena distributes profits from the sales of the works, keeping a percentage of the profit as part of its revenue. Arthena also gives collectors first dibs on acquiring the artworks in the collections for themselves.
Right now, the minimum investment necessary to buy into a collection is $10,000, but Arthena aims to lower that to as much as $2,500 to make the company more inclusive – another aspect of the art market that the company’s founder passionately wants to update. In addition to the benefit of entering the art market at a more affordable price, Arthena provides members services by coordinating gallery tours, studio visits, and meet-and-greets with artists, allowing collectors to expose themselves to the world of fine art collecting.
What are the legal implications of Arthena?
Equity crowdfunding has become increasingly prevalent in recent years, particularly in areas like securities and real estate. But it’s the recent passage of the JOBS Act that allowed Arthena to begin their operations, creating opportunities for marketing securities and shares that didn’t exist prior to 2013.
Arthena’s business model relies almost entirely on Title II of the JOBS Act, which allows the general advertising of securities offerings, provided all purchasers of those securities are accredited investors. In order to qualify as an accredited investor under Title II, an individual must:
- An individual with annual income over $200K (individually) or $300K (with spouse) for each of the last two years and an expectation of the same this year.
- An individual with net assets over $1 million (including spouse’s assets), excluding the primary residence
- An institution with over $5 million in assets, such as a venture fund or a trust
- An entity made up entirely of accredited investors
That doesn’t necessarily mean that lower income investors are disqualified from participating in an Arthena collection. New SEC regulations are on the horizon that will allow non-accredited investors to participate in equity crowdfunding: Title IV, which passed in March, will likely ease the restrictions Arthena currently has on the kinds of investors that can participate in their collections.
Arthena’s model also triggers certain co-ownership principles of property law that could be a problem going down the road. While the company has taken care to delineate certain aspects of that issue, such as promising to create a plan in which each individual owner of a group of works have the opportunity to hang their investment in their home, the very existence of such a system could cause substantial legal liabilities should the works become damaged.
Regardless of the risks, Arthena is a start-up art project that’s got everybody buzzing. And if all goes well, we may just be looking at the future of the art market, one that’s far more inclusive, savvy, and dynamically engaging to a growing population of future collectors.
What are some of the challenges you think Arthena poses? Would you invest with Arthena?