A decal of the iconic Facebook "thumbs up" is the first thing you see when walking into Grand Central Tech. Proceed a little farther down the hall into the main office space, and you'll see another icon through the window: Grand Central Station, its golden facade taking up almost the entire view.
The accelerator, which opens June 16, is the new tenant in Facebook's previous New York headquarters at 335 Madison Avenue. Aside from the "like" sign and a garage door that closes off a conference room, GCT's founders Charlie Bonello and Matt Harrigan have stripped the space of all things notably Facebook. Less than a month before launch, the office-to-be had just two hand-built wooden workbenches, the thumb, and not much else. Bonello and Harrigan had yet to build the rest of the tables, which, when finished, I was told, can withstand an Irish jig. "They are durable as hell," Harrigan said.
A week before the official opening, the aspiring tech hub has just about all things necessary for startup life: supplies, office chairs, Internet, couches, and, of course, companies on the verge. This year's 16-company class includes NextGenVest, an app that teaches high school students money management skills; Caliber, a Tinder for LinkedIn; Cohero Health, an asthma health tracking app; and Grid Mobile, a new telecom.
Like all accelerators, GCT offers mentorship to budding companies. But unlike Techstars, Y Combinator, and scads of other startup bootcamps out there, GCT doesn't provide any funding. Instead, it offers something different: freedom. Bonello and Harrigan provide no cash, but also take no equity. They also charge zero rent for the year-long duration of the program.
The space comes rent-free because of a fortunate deal the founders made with Milstein Properties, which owns the building. (You may recognize the name from the Milstein Hall of Ocean Life, which is home to the famous blue whale at New York's American Museum of Natural History.) Milstein has donated 15,000 square feet ostensibly because of the family's interest in investing in the future of the city and its tech scene. An added benefit is that it also creates future tenants for Milstein Properties, which over the years has developed or acquired more than 20 million square feet of office space.
"What they're doing is choosing to look at this building holistically and say if we want to reorient ourselves towards tech, that means we have to make a concerted effort to take on the associations with Midtown and provide space for them [tech companies] to grow into," Harrigan explained.
In exchange for a year of free rent, GCT asks that companies—assuming they are solvent and want to remain in New York—rent space in the office building after graduating. Milstein gets loyal tenants who will not only pay rent for years to come, but function as the beginning of a new startup scene in a neighborhood traditionally associated with staider industries.
"As the tech sector continues to thrive in New York, it’s quickly becoming an integral part of our city’s economy. As it relates to real estate, the energy and innovation that this industry brings to a building is exciting and attractive to all kinds of tenants," Michael Milstein, a partner at Milstein Properties and chairman of Grand Central Tech's strategic advisory board told Fast Company. "We have had past success with tech tenants, including Facebook, which occupied the Grand Central Tech space most recently, and wanted to continue to support the tech community and help it succeed alongside other stakeholders in the area."
The community aspect also aligns with Harrigan and Bonello's interests, as the accelerator FAQ explains: "We truly are committed to building and retaining a community of startups, and feel that doing so will return tremendous value to all the companies that are part of it. Our expectation is that companies do so for a period of at least four years beyond the initial year." If a company needs to relocate to a different city they "will consider discarding this condition." Bonello and Harrigan have already secured office space upstairs in the same building for future alumni.
Because GCT doesn't act as an investment vehicle and the founders wouldn't have direct financial gain from a big exit, the types of companies it seeks to support may have different metrics for success than what might appeal to typical accelerators. Bonello and Harrigan want companies with interesting ideas that can sustain enough revenue to fill up part of an office space upstairs—not a billion-dollar payday in a few years' time. Although some of the startups in the first class have seemingly derivative ideas, the roster also includes Nagare, a water desalination company, and Drilling Analytics, which provides analytics to oil companies.
Part of the motivation behind their novel model is that Bonello and Harrigan think that traditional accelerators offer a bad deal to companies. A 10% stake in your company is a lot to give up for some seed money and mentorship. "I can't really do much with that amount of cash," Harrigan explained to Fast Company. "You can argue Y Combinator and Techstars are worth that. But you could also argue that that's a tough sell."
Indeed, most accelerators don't provide much fuel for startups. A 2012 study found that 45% of graduates across all accelerators raise no additional money. Techstars and Y Combinator are two standouts in the field. That same study found those were the only two spaces with "meaningful" exits. Techstars publishes its "results" online, boasting only a 10% "failure" rate. It has ushered 37 companies through exits of different sizes. Both Airbnb and Dropbox came out of Y Combinator.
The Techstars founders concur that most startup programs don't work. "The majority of accelerators are not good for companies and will fail. There are too many of them," Techstars NYC cofounder David Tisch told Fast Company back in August 2012.
Both Techstars and Y Combinator succeed because of the network and connections they offer, and Grand Central Tech will live or die based on its ability to help startups start up, argues Techstars president David Brown. "Startups are leery of investing time or equity in one of the many accelerators that may not be able to deliver results," he told Fast Company. The program—the connections, the mentoring—is as valuable as the cash, he says.
Bonello and Harrigan say they have accounted for the mentor piece of the model through, of all things, their high-school alumni network. The two met as students at New York's Regis High School, a tuition-free, all-boys Jesuit school. After spending their post college years working in finance and consulting as the New York tech scene emerged, the two decided to organize a summer-long accelerator last year. Their alma mater provided a big, beautiful, free space for six weeks. The school also offered its alumni network, which is how the two got in touch with the Milsteins. (The family's accountant also went to Regis.) In exchange for those resources, Bonello and Harrigan worked with the school to arrange a summer internship program with companies in the accelerator.
Tapping a high-school network for mentorship may seem unusual in the insular world of tech, but the Regis alumni network offers a unique and useful mix of professionals, Bonello and Harrigan argue. Unlike a traditional accelerator mentor group, Regis graduates include accountants, doctors, lawyers, and a smattering of other professions. Of course lawyers and accountants are particularly useful to startups, but a health related app like Cohero, for instance, has access to doctors both for consulting on the product, and as a user base.
"More people can get involved. Older people can get called in off the sidelines." explained Bonello. "Nobody is knocking on the door of a 40-year-old accountant, yet he knows the accounting industry better than any startup that is trying to disrupt accounting. They are not being brought to the table and we've got a mechanism to do that."
As GCT has expanded to its own space, it has decided to continue its connection to Regis, and has pulled other schools into the mix. Students from eight area schools will spend the summer interning with the startups. The schools—half public, half private—will also have access to the space twice a year for fundraisers. The Regis alumni network will continue to be available to companies, and GCT is working on building a relationship with the Department of Education to tap into other networks.
In addition, GCT has also put together a group of "strategic advisors." The group includes investors, entrepreneurs, and more traditional businessmen, such as the CFO of Time Warner. Bonello and Harrigan are working on clinching corporate sponsorships, which would provide further mentoring from people in established industries. Those would also serve as a revenue source for Bonello and Harrigan, who don't have much overhead, but need a way to pay their own salaries.
With its novel setup, GCT has attracted an eclectic mix of companies. The group includes women, veterans, minorities, and a 13-day-old human. (Jill Sherman, the founder of online wholesaler Modalyst, had a baby less than two weeks ago.) Bonello and Harrigan say, besides the newborn, the average age skews a bit older than other accelerators, and the vibe certainly feels mature. The companies I spoke with don't absolutely need seed investments to survive; some already have revenue streams, others have secured funding elsewhere. While Sherman and others said they joined for the accelerator experience, more than anything, the companies came for free rent.