Sramana: What is your commission structure?
Alexander Zacke: Our standard fees are 20% from the seller and 20% from the buyer. Our fees are negotiable, depending on the value of the consignment. The overall commission we receive will likely be less than 30%.
Sramana: You said that you raised some money to build this company. Can you talk a bit more about your financing strategy?
Alexander Zacke: We did a small round in 2012 and then a Series A after our first round of successful auctions. We took a total of $21 million from German venture funds between the seed and Series A. By the time we took our Series A financing, we had already shown a large user base and a viable business.
One of the key metrics in our industry is bidding volume versus net revenue. A healthy ratio is 1:5, and we are 1:11 or 1:12. The bidding volume in the past 10 months for Auctionata was $115 million. That is extremely high for a business that has been around for only a few months. For every dollar we have in sales, there are 10 times the amount of bids. That has been a key metric for our Series B round, which we are currently raising.
Sramana: What did you have in place before you raised the first $3 million?
Alexander Zacke: We did not have anything. We had a PowerPoint presentation. We raised that money on a concept.
Sramana: I’m assuming the reason you raised that money was because of your deep understanding of the art auction business. Is that fair to say?
Alexander Zacke: Yes, and we have a very credible strategy for bringing that business online. When I look back at that presentation today, I can see that we have executed exactly what we said we would. We have also hit the revenues exactly as we said that we would. That plan would never have happened without what we learned from our first unsuccessful launch.
Sramana: How did you finance the failed beta launch?
Alexander Zacke: It was done with my money and my co-founders’ money.
Sramana: So your lessons learned from that failed beta launch was compelling knowledge to let you raise $3 million in seed funding?
Alexander Zacke: Yes, that was the important part. We made it clear that it would take a long time and that we would have to build a lot of infrastructure to bring a fine art business online. At that time, if you asked art dealers and auction houses about our plan, they would have told you that nobody would buy art online without having seen the work in person. We did not believe that hypothesis. I really believed that we could crack the code of selling 7-digit art pieces online if we did it right. We knew that if that turned out to be true, then we could build a business with billion dollar revenues like the major auction houses.