Art and technology. Market ArtTech-стартапов. Part 2
ARTinvestment.RU   19 марта 2020

The most common mistakes made ArtTech-стартапами during the launch phase

In the first of the material, we reviewed the main figures with whom the young company at the intersection of art and technology came to the beginning of 2020. Today we will talk about the seven major mistakes in actions ArtTech-стартапов, which we have summarized on the basis of personal communication with both sides of the market @founders mdas projects and investors — in the last two years:

1. Definition of a false problem

First, in chronological order, the error startup founders — is blind faith in the idea. Essential clause: faith — is motivation and a necessity of life, but blindness — companion of ignorance that belies the success of the project at the launch stage. If the Decking, head of the Supervisory Board of TEFAF and the Creator of ArtTech-стартапа Artory, drew attention to another conference Christie's Art Tech Summit in 2018: "most of the startups focused on his proposal, ignoring the demand of the art market. The reason — they don't know him real problems." Unfortunately, the majority of educational institutions associated with art-бизнесом focus on the outside market, paying little attention to the insider, and invited speakers from among the functionaries told us with a smile on their own progress. Also note that most of the founders of the ArtTech-стартапов come to art from other areas — financial, legal or technological, in the best case, knowing about the mechanisms of art-рынка from books Donald Thompson or Philip hook. The four questions the author should ask themselves from the beginning:

• whether There is in fact a problem that is solved by my proposal?
• whether my suggestion will solve the existing problem in the art market?
• How the art market without me so far (how to solve this problem today without my unique technology)?
• If I have competitors, and if not — why (more on this below)?

one could hear from startup founders the following argument: "At the time of the advent of the iPhone did not solve any problem, it has created a market demand from scratch. People just didn't know what they're missing days to drive around the screen with your finger." Those who claim such, I do not know the following market rules: the need from scratch can create only the market leader — e.g., Apple, Google or Amazon. Such companies are called strategists, and talk about them in the following paragraphs. In relation to the art market strategists are Sotheby's, Christie's, Art Basel, TEFAF, Larry Gagosian, and other companies and persons.

2. Incorrectly selected market

As we recall from the previous article, ArtTech-стартапы introduced after 2017, are divided into four categories in this percentage: transactions (Internet-аукционы, online-галереи) — 64 %, information (databases, indexes) — 12 %, research (online-образование, machine learning) — 12 %, the management of collections (logistics, storage, insurance) — 12 %. In other words, most of the ideas of young companies focused on the sale of art in any form. Accordingly, their total available market now stands at $64.1 billion, of which only 42% of the transactions are public (officially confirmed). From the perspective of the institutional investor,sixty-four billion — is a very small market, and 2/3 of companies in the sphere of technology in the arts who are trying to get — is either ignorant or crazy. At the same time, the remaining 1/3 of startups that focus on more "rough" work of art market, have a potentially available market of about $3 trillion — the value of all art in private hands, which is constantly being researched, stored, insured, and only occasionally sold. Thus, properly selected niche market will allow start-UPS not only do not bunch up in one area, but also to have a more serious market performance in dealing with investor.

3. The asceticism of the startup founders

Active communication in a professional environment — the success of a startup. Fair projects, thematic conferences, professional competitions and informal community — visiting such events should be part of the busy schedule of Creator of a young company. It is a mistake to believe that excessive exchange of information will lead to theft of your ideas. In-первых if your experience will take, so you were right. In-вторых, you can rest assured at the time of the emergence of new ideas in your head like thoughts of ten goals across the world. And who is-то usually in your development for the year ahead of you. The finish comes just a few companies that will share new market — try to be among them! Meantime, look for those whose startups similar to yours, make friends and learn their negative experience. But if you find that your startup is truly unique, first of all ask ourselves: do we need this idea to market, if it has no competitors? And keep the answer ready the next time this question you will hear from the investor.

4. The study of consumers and development of consumer network

Many startups confuse the process of studying the consumer and the consumer network. Both are needed for founders when the idea is framed in a presentation and the time comes to test it on the audience. Usually the idea first, represent the available audience — family, friends, colleagues, at least — from the professional community. Reviews of loved ones, usually positive, and the founders often leave it at that, turning to search the first money. But even in communicating with your future audience a simple test of the idea in the "question —, the answer is" not enough. Explain with an example: you create a system of remote management of the collection, operating on a subscription, and interviewed about 300 collectors. 70 % of them supported your idea and said that will use this service in the future. It's good, but you still only learn the consumer. Now try to take them with a prepayment of the annual subscription, even before the creation of the product, — for example, with a 50% discount. You will immediately see how your 70 % collectors away: on average you will receive the money from 10 to 15% of the respondents. This will be your actual users. But now, realizing what part of the audience shifts from admiration to parting with money, you can more properly assess future income (and marketing costs).

5. Useless prototype

Received the first money, a tech startup usually directs them to the prototype —trial software product that can test the audience and at the same time show the investor the feasibility of further investments. The main mistake that startups at this stage, — is an attempt to accommodate the prototype all the functionality of the future project. The resulting product resembles a frozen long-term construction with protruding valves: expensive to build, and to understand even more. The other extreme — as a prototype to hone to perfection what-либо part of a startup that has no practical use. There is a good rule: if your final product — is a luxury car, its prototype must be perfectly balanced wheel with rhinestones, and a skateboard. Skateboarding, unlike the wheel travels, and the wheel to roll manually. In the first variant the investor is more likely to believe that you understand the laws of mechanics and team work and give the money for the car. In the second — at best buy your wheel and send everyone home.

6. The focus on the investor, not the strategist

in Simple words: investor — person or company that invests money in expectation of returns (in the best case — taking into account profit in the optimal — savings adjusted for inflation). Strategist — largest company among the market leaders, which in case of your interest in your startup buys it completely, or to include its technology in its core business or to remove from the market (because he has a subsidiary company-конкурент). In recent years, policymakers are increasingly buying startups from-за of a cohesive team: it is given to the development of a new project, and the primary business-идею startup utilized. Historically for any startup the best business exit — is to be purchased strategist. However, most startups, the first thing is to investors, whose number is multiplying every investment round (the stage of attraction money). As a result, by the time the strategist was supposed to pay attention to a startup company is a complicated equity structure with many owners. When buying such a startup, as a rule, the profit of its founders is close to zero: all go to repay obligations issued to the investors at the initial stage when the first real money shares in the company were given very lightly. More competent approach — initially "reach out" to strategists and find out how they are interested in your business-идея and will they be ready to buy it, after several years of testing in the market. If the answer is Yes, then you can look for investors, to talk about the interest of the strategist and to rationally structure their equity participation. Risks of ideas being stolen is minimal: conditional Sotheby's cheaper later buy you with cones filled at the expense of your time and money than to create their own Department. It is proved time and , money strategists.

7. Errors in financial models

Suppose you — ArtTech-стартап who have successfully completed all the listed items: you have a correct niche got the first customers, has created around itself an ecosystem of followers, partners and competitors were blessed with a strategist at the start and attracted investment capital. Analysts from the investor've looked at your business-план and gave the "green light" money tranches and the actual beginning of your work. Right now might be nuances that you missed and at the same time not bother representatives of the investor. Analysts are looking at underlying things: the channels of the sales funnel to attract customers, UNIT-экономику, etc. If all this is consistent with the model the financial model, they verify their purchases project. But the inner workings of the art market, they don't know they are obliged to initially know you. Here is an example: you create "art-шазам", application for recognition of paintings in museums, and attract $5 million investment. Your sort of financial model stable, but you start to create a product and find out: it turns out, in order to sign partnership contracts with all art museums of the world (about 15 thousand), your lawyer according to the norms of the local Union will need to work a little more than 5 thousand working days, or 23 years. You frantically begin to hire a third-party art-юристов, which charge an average of $500 per hour, — as a result, your estimates will increase by $22.5 million And this is only the beginning of the surprises waiting for the founders ArtTech-стартапов, which did not take into account features of the market.

About the statistics of survival ArtTech-стартапов, optimistic figures and projections for the young companies at the intersection of art and technology we will discuss in the final part of the material.

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