The Story Behind My Second Investment, Paddle8

Last Christmas for me was the best of times and the worst of times. The best overshadowed the not-so-good, but in the moment, it was hard to know. I wasn’t really sure what I was going to do next year, in 2013. It’s kind of weird to go home and spend time with old friends in your mid-30s and not really have an answer for the question: “So, how’s work?” Well, I don’t have a clue! But, jokes aside, I began talking to potential LPs in my fund and my lawyer over the holiday and felt like something could come together.

One evening with family over the holiday, I got into a great, long discussion (over wine, of course) about the economics of the art industry. My sister-in-law works in the industry is a student of such matters. Over the course of a few hours (and bottles), she unpacked for me the different paths by which art is created, selected, picked for galleries, sold at auction, and circulated within pre-defined circles. It wasn’t a perfectly efficient market on first glance, but given how each party needed to protect their position in the chain, the market worked quite well.

So, given my interests in economics and love of marketplaces, I started digging into examples of how one piece of art may move through the chain. Lots of questions. I can be a tiring interrogator. Eventually, I honed into one area — the potential for a marketplace to resell art in a tasteful way that would not disrupt the balance of the art world. “Oh yeah,” she remarked, “you’ve got to check out Paddle8. They do this.”

Well, OK…so, I did.

Turned out Paddle8 was angel-funded by a friend of mine. I emailed him and asked for an introduction. It took about three weeks to get that intro email. I talked to a co-founder of Paddle8 on the phone (based in NYC), where it turned out we knew some people in common. I told him about my interest in investing and the story behind the fund. He did a few reference calls and then said “Yes.” They didn’t have many connections to the Valley and wanted to change that, so my timing turned out to be good.

As the round closed, I realized my second investment was about to go into the books, and both companies were mostly located out of the Bay Area. I didn’t plan it that way, but it’s interesting now to look back. For Paddle8, which has different auction and marketplace products for art, it certainly makes sense to be in NYC and have access to Europe. And, I get to go along for the ride as they grow their business, mixing design, user experience, marketplace dynamics, and the fascinating, opaque world of art. In 2013, Paddle8 is on track to generate over $30M+ in bids, up three-fold from the previous year, and has completed more than 250 auctions since its birth. The online art market is currently about $300M big, but obviously the market for art that’s transacted offline is much, much bigger. That means opportunity, and even companies like Amazon are aware online art markets could grow into billion-dollar markets over the next decade.

I believe in two things about this investment. One, that art is important as an instrument of money — in the same way digital currencies are gaining more and more momentum, art has been an alternative asset for hundreds of years and an interesting way to store value. Two, I am deeply passionate about online marketplaces and the efficiencies they impose. I will look at any and every marketplace deal as a potential investment. They’re hard to build, and with Paddle8, it was clear they knew what to do, which makes my job that much easier.

Haywire is written by Semil Shah, and is published under a Creative Commons BY-NC-SA license. Copyright © 2014 Semil Shah.

“I write this not for the many, but for you; each of us is enough of an audience for the other.”— Epicurus