What Venture Capital and Art Have in Common

A unicorn appeared at a Silicon Valley event Wednesday night — in a screen print by the British artist Mark Wallinger.

Unicorns of the tech type – startups with a valuation over $1 billion – also were discussed at a cocktail party on the top floor of the Epiphany Hotel in Palo Alto. There, William O’Reilly, of the art-auction house Bonhams, and Jon Callaghan, a founding partner of venture-capital firm True Ventures, drew parallels between venture capital and art investing. Both markets, for example, drew about $50 billion in investments last year, they said.

Valuing a work of art or a startup is an art, they said. “The real issue we wrestle with is what is the valuation of the idea,” said Mr. Callaghan, an early investor in Fitbit Inc.FIT -3.89% “We’re trying to take something that’s 100% potential.”

“The problem with art is it doesn’t have intrinsic value,” said Mr. O’Reilly, Bonhams’ director for the Americas and Asia. “You can’t weigh it.”

That hasn’t prevented art prices from skyrocketing, just like tech valuations. A May auction of Pablo Picasso’s “Women of Algiers (Version O)” set a record for a work of art sold at auction: $179.4 million. After noting that “it’s a 4-by-6-foot piece of canvas with a bit of pigment on it,” Mr. O’Reilly equated the price tag to what Hulu paid for the rights to “Seinfeld” reruns or one F/A-18 fighter jet.

Then there are the investors who indulge in art or tech for the prestige. Mr. O’Reilly pointed to Qatar’s purchase of many top works of art in recent years. “They’re buying the dream,” he said.

Mr. Callaghan said he sees similar behavior in tech investing. “We call them press-release deals,” he said. “They’re buying a little piece of a deal for the icon.”

Despite the parallels, art and tech rarely intersect. Over glasses of Fisher Vineyards’ Unity wine, guests pondered why tech’s newly minted millionaires and billionaires are not building art collections.

Maybe it has something to do with the fickleness of prices. Mr. Callaghan said that 90% of tech’s unicorns fail, “not that they lose money, but they don’t surpass their valuation.” Mr. O’Reilly, who bought his print of Mr. Wallinger’s unicorn for £1,500 (about $2,300) earlier this year, must hope his unicorn doesn’t suffer the same fate.

 

[“source-wsj”]