Step 1. Backend & market research (4-6 weeks in a product cycle of 2 weeks)
Create a functional frontend and connect it via Horizon APIs, to retrieve information and send transactions, for first time acquisitions. Information to be retrieved: number of shares that are in existence. Distribution of ownership, number of holders and quantity of assets held. Transactions: funds commitment, and receival of shares.
Founders + marketing intern:
Design and perform market research to have a solid basis for the creation of the detailed marketing plan.
Step 2. Frontend, marketing plan & legal info (2-4 weeks in a product cycle of 1 week)
Create the custom exchange frontend, allowing users to directly buy and sell.
Users will interact in the main web platform and advanced users will be able to operate from their own Stellar wallets.
Founders + marketing intern:
Creation of the detailed marketing plan. Creation of the main marketing materials.
Conduct legal research, reaching out to legal advisors to establish the requisites for a legal crowdinvesting launch. Contact KYC service providers.
Step 3. Communication, feedback & legal procedures (5-6 weeks in a process cycle of 1 week)
Founders + marketing intern:
Communicate the advances achieved to the artists and gallerists to get their support for the initiative and commitment to sell on our platform.
Beginning of the marketing strategy, aiming to create and feed a community of early adopters.
Legal procedures. Apply for the licenses needed within Germany and the European Union. Choose a KYC provider. Legal counselling for trademarks registration.
Improve the platform based on the feedback provided by the community, legal entities and market research.
Step 4. Pre-Launch (5-6 weeks in a process cycle of 1 week)
Create a Kunst21 node in the Stellar network, guaranteeing the direct approval of transactions within our clients, maintaining the mainnet updated for security reasons.
Fully automate the process from bank transactions to token assignment via Django – Polaris.
Founders + marketing intern:
Fulfill the regulatory requirements by the German Federal Financial Supervisory Authority. Trademarks registration.
Choose an artwork and partner artist/gallery for the launch initial art offering (IAO). Announce launch date and execute marketing plan accordingly.
Step 5. Launch, estimated 22 weeks after the start.
To achieve a functional platform and fulfill the legal requirements of an investment product within the European Union, first we need the focus of 3 founders/developers for approximately 6 to 9 months, as well as a legal counselling for which external support will be asked. Due to the engineering background of the 3 founders, support for marketing is needed and will be fulfilled by an intern with master’s in marketing and external help from an agency.
While the functional platform is being developed we will be researching the legal framework with help of qualified professionals to fulfill the requirements of Germany and the European Union. We aim to have an initial product ready for public launch in the first months of 2022, January- February.
Budget summary: Labor costs (3x developers, 1x marketing intern), legal advisory costs, operating license costs. Other operational costs paid by the founders. First acquisition to be funded by the founders and the early adopters community.
PROBLEM & SOLUTION
So far, only the wealthiest could buy paintings collectively because they set up a company per painting (e.g. limited liability company) and thereafter distribute the ownership in shares. The cost of this method easily reaches thousands of dollars per painting, therefore not being suitable for paintings from young professional artists who sell for values in the four-digit range. Thanks to the utilization of a blockchain the costs associated with the process can be about 95 % lower, which also applies to lower priced paintings. Smaller investors with little money that want to diversify their risk, now can buy $1,000 worth of shares from different paintings and artists, instead of buying just a $1,000 painting.
Our technical proposition consists in issuing one token for every security in which the artwork ownership is divided. With the Stellar blockchain as the main interactive space, making our service directly capable of providing a custom exchange. We will create our own node in the Stellar network, guaranteeing the direct approval of transactions between our clients (our own internal network), but maintaining the main net updated for security reasons.
Innovation: paintings are proposed by one of the future investors, or the platform itself, in order to be acquired from a dealer or an auction house. Within our platform, thanks to the Stellar blockchain, the money is collected and managed, lowering the costs of contracts between investors, assets get minted and distributed as tokens. The cost of transaction is very low when introducing the artwork as part of the Kunst21 platform. And it does not stop there, as the very nature of assets in the Stellar-Kunst21 platform makes it easy to exchange them and exit the investment.
The use of the systematic methods provided by blockchain technologies allows:
- Lowering the overall costs of assets acquisition and first division ownerships.
-The capacity of maintaining the records of every operation performed. This is a transparency policy so much needed in the art world that will give more confidence to new investors.
- In the event of selling the sellers have access to a wide customer network, who are already registered and in the future the implementation of a liquidity pool technique.
- The possibility of tracking the shares permit to assign voting rights to the customer in the events such as: sell for a fixed price, bring into auction, restore works on the painting, lease to museums in exchange for fees, etc.
We buy the paintings from painters or gallery owners and sell the shares to client-investors. Both sellers and clients will be located in the European Union, later on looking forward to expanding to the US.
B2C: The target groups are young (25-40 years old) art enthusiasts, who also want to invest in art and do not need or want the painting at home, sometimes the art collectors have many paintings and no specific storage place, with proper humidity or temperature. Investors who own a large art collection who are looking to simplify the process of investing, storing, insuring and selling, and investors with little money who want to diversify their risk.
B2B: Family offices and private investment funds or any other kind of institutional investors that are willing to buy paintings out of budget or/and diversify their risks.The European art market for institutional investor, as described in Deloitte's 'Art & Finance Report' 2019, for modern and contemporary art was a 32% share of the global market in 2018 (including the UK, the main European trading centre) with a total volume of $1,431 million.
With the objective to be financially independent from the very beginning we will charge a small commission at the moment of acquisition, however we are making our major profit at the moment of selling, and in between times through transactions on the exchange.
- A 10% commission on acquisition to the artist or gallery. Fixed for B2B, EUR 800.
- Commission for the transactions on the exchange.
- Storage/insurance fee with a markup until painting is sold only for high value paintings, B2B.
- Collection of the main profit after a few years, when the artwork is finally sold in an auction, 20% of the value reached in the sale auction.
- Leasing paintings to museums or interested exhibitors and taking 20% fees for the arrangements and distributing the 80% to the investors.
Actors will be willing to accept the fees structure in exchange for the liquidity they will have access to, at the moment of selling.
Financial services marketplace. The artwork trading industry is large, with $65 billion worth of arts being traded each year but is still considered a niche market. Therefore, it is an industry with a solid market and great expansive outlook.
Primary market research was done with the use of Google Trends: “Art investment” showed the biggest interest in Hong Kong. England, UK took 4th place on the list of interested countries. Germany, meanwhile, stays at the 11th place. “Crowd investing” brought up the results of 3 interested countries: UK, USA, Germany (where the peak of interest was during October 2020, February 2021, April 2021, the biggest interest being in July 2021).
The market is especially growing due to interest in alternative art investments for the past 12 months.
Secondary market research (Deloitte Private 2021, Art Basel and UBS Global Art Market Report): The digitalization process of the art world has undoubtedly accelerated a trend of continuous growth in the online art market which now amounts to 25% of the total.
Internationalization and new buyers, Christie’s announced that 32% of the new buyers of “online-only” sales were millennials (23-38 years old).
Digitalization and transparency, digitalization increases in price transparency which resulted in greater confidence in the possibility of online purchases (83%). Consequently, the introduction of Kunst21 will be creating part of the right environment for the internationalization, digitalization, and transparency of the art world.
THREATS & OPPORTUNITIES
Getting the trust of the customers, who have not personally seen the paintings.
Liquidity for the individual artworks, if the liquidity of the painting is low, there will be difficulty in converting the investment back to fiat currencies.
The potential to expand into other physical assets including antiques, classic cars, gemstones, vintage liquors, and rarities.
Partnership with museums / galleries, then it can increase the value of all the artworks on the Kunst21 platform substantially (galleries and collectors who place their fine art for sale). Expand the products offered alongside the Stellar blockchain developments, such as implementation of a liquidity pool.
• Maecenas, https://www.maecenas.co/ Blockchain (Ethereum blockchain). From Singapore, focus on high worth paintings, they bought a 31.5% of an Andy Warhol for USD 1,7 million.
• ArtSquare, https://www.artsquare.io/, https://www.feralhorses.co.uk/ It already has successfully tokenized an Andy Warhol print for €28,000 and have other 2 artworks being fractionally sold.
• Masterworks, https://www.masterworks.io/ It is registered and qualified by the Securities and Exchange Commission (SEC)
• WithOtis, https://www.withotis.com/ Based in New York, it is a marketplace that lets anyone invest in exclusive alternative investments such as sneakers and comic books, it is also experiencing an increase in demand.
• Investment art funds, although they don't offer the possibility to create your own portfolio, choosing each artwork, their margin is 2% annual fees and 20% from year's profit.
• Art galleries, who charge between 40% and 50% in commissions. Auction houses, with 20% to 25% fees for value under USD 450,000.
MARKETING & SALES
Marketing objectives: to increase the global investor base interacting with the Kunst21 platform to 200 and the number of verified art pieces on the platform of Kunst21 to 150 by the end of 2022.
Plan of actions: constantly maintaining and improving the Kunst21 website,and enhancing users' experience. Create a lifetime value for a client by constantly interacting on various platforms to build trust, updates with the art pieces sold, and generate educational content on investments in Art pieces. Articles on art-related and business magazines: Die Weltkunst, art das Kunstmagazin, Capital, Brand eins, Die Zeit. Presence in art fairs and handouts in museums and art fairs (booklets, brochures, leaflets). Social Media presence on Instagram, Twitter and LinkedIn.
For B2B: Direct contact with asset managers who advise high net worth individuals. Advertisements in investment reports such as "Deloitte Art & Finance", magazines on art investments throughout Europe and cultural pages of business newspapers: Frankfurter Allgemeine, Handelsblatt, El Mundo etc.
Plan of actions: constantly maintaining and improving the Kunst21 website,and enhancing users' experience. Create a lifetime value for a client by constantly interacting on various platforms to build trust, updates with the art pieces sold, and generate educational content on investments in Art pieces. Articles on art-related and business magazines: Die Weltkunst, art das Kunstmagazin, Capital, Brand eins, Die Zeit. Presence in art fairs and handouts in museums and art fairs (booklets, brochures, leaflets). Social Media presence on Instagram, Twitter and LinkedIn. Establishing a showroom space to display the crowd-collected artworks to the public.
RESOURCES & RELATIONSHIPS
• The HTW Dresden, university of applied science, has a coworking space, where we were offered workspace, as well as management and legal support.
• Future SAX /Sächsische Aufbau- Förderbank (Saxon Development Bank), they financed living expenses with €12,000 for the first year of foundation in 2021.
• We are working to achieve an agreement with an artist’s association from Dresden, Germany, to provide the first artists for the platform. Association: Neuer Sächsischer Kunstverein.
• Close relationship with a blockchain companies cluster in Mittweida, Germany.