The long-awaited market downturn may finally be here, and investors are preparing for it by diversifying their portfolios away from traditional holdings of stocks and bonds into alternative assets such as collectibles. Thanks to tech companies like Masterpieces (physical art), Vinovest (wine) and Rally Road (classic cars), retail investors can now invest their money in alternative assets with relative ease.
Many of these collectibles have been unlocked over the past few years, but it’s still hard for tech startups to crack one big market – luxury gems. This is an opportunity for a new fintech startup called LuxusFounded by two women with backgrounds in finance and luxury fashion, it hopes to attract investors.
“People have been trying to turn gems into an investment asset class since 17th-century Venice did it with gold, and no one could figure it out,” co-founder and CEO Dana Auslender told TechCrunch in an interview. Auslander, who has worked in the hedge fund industry for 23 years, said her experience in structuring financial products influenced her approach to founding Luxus with that goal in mind.
Gems are not fungible, meaning that, like precious works of art or a classic car, they cannot be easily separated and retain their value, which is why Auslander believes that offering investors fractional ownership of the gems would be a more efficient way to sell them.
“As a product person, as soon as I discovered JOBS Act and Reg A+, I was like, ‘This is how you do it,’” Auslander said. Reg A+, introduced under the JOBS Act in 2015, allows companies to raise capital in a process similar to an IPO but with fewer reporting requirements, meaning companies typically pay less to launch an offering and can sell their securities for more to a wider range of investors than in a traditional IPO.
Last summer, Auslander teamed up with her friend Gretchen Gunlock Fenton, a luxury and fashion professional with a background in Glamour, as well as high-end brands Tod’s and Chanel, to found Luxus. The platform officially launches today and plans to debut its first investment offering to investors later this monthpending SEC approval is a rare pink diamond mined in 2016 in Kimberley, Australia, Auslander said.
According to a document the company shared with TechCrunch, Luxus has valued the diamond at $400,000 and will offer investors 2,000 shares of $200 each. He launches an offer in partnership with a jeweler Quiat/Fred Laytonwhich, like all suppliers that Luxus plans to work with, handles the safety and storage of the diamond itself.
Auslander said that colored diamonds, especially pink ones, are very rare and make up 0.001% of the diamonds mined in the world. Because of their scarcity, they have historically had a low correlation with traditional markets, Auslander said, and have delivered stable returns during periods of wider volatility and inflation.
“Between 2005 and 2020, this particular stone returned between 4% and 13%, outperforming both the S&P 500 and gold by more than 200%,” Auslander said.
The company has raised $2.5 million in pre-launch funding from investors including fashion entrepreneur Veronica Byrd and current and former Blackstone executives, Auslander said. The company also won the NBA Full Court Pitch Competition for Startups in February and was given the opportunity to compete in the league’s All-Star Weekend, beating a golf and sneaker company before an all-male panel of judges. proudly.
Brands will pay Luxus a small fee for listing their assets on the platform, and LUXUS will charge investors a management fee of 50-75 basis points. Auslander added that the platform will have a “buy now” feature, effectively making it a sales channel for jewelers.
According to Auslander, his target investors are similar to those involved in crypto — retail investors, collectors and people who are fans of events like the Met Gala or the Oscars, who not only read the editorial coverage of these events, but also want to participate in them. ownership of the relevant assets. She added that institutional macro investors looking to diversify their portfolios with hard assets are also a key demographic for Luxus.
Gem mines around the world are predicted to continue to close as most of the gems have already been mined, so Auslander said shortages in the product should also drive up the cost. All diamonds on its platform will have to meet internationally recognized Kimberley Process to ensure they were ethically sourced, she added.
“We’re trying to create a new asset class like Masterworks did, but we’re actually much more of a commodity and we’re not man-made. It borders a bit more on merchandise, luxury goods and collectibles,” Auslander said.
When I asked Auslander why another platform like Masterworks hadn’t entered the luxury gem market yet, she explained that access to suppliers could be particularly difficult.
“It’s really a very concentrated industry and it’s a really deep relationship between me and Gretchen. We have some [suppliers] as investors, we have a few other brands that we are queuing up… It’s also a very risk-averse private industry,” Auslander said.
Another key difference between Luxus and a platform like Masterworks is that Luxus plans to use the Series LLC structure, grouping assets for accounting purposes rather than listing each gem as a separate entity, Auslander explained. The benefit of the Series LLC structure is that it allows for greater efficiency and speed, she said, noting that the holding period for gemstones is typically much shorter than for works of art, from 18 months to three years, because the market moves much faster. .
“I think there will be significant institutional demand in the next 18 months, three years, five years – we just want to make sure we can provide supply,” Auslander said.
Credit: techcrunch.com /