“But what’s in it for you guys?”
This is the question Charlie and I inevitably face in the course of any conversation where we’re describing Grand Central Tech’s model. It’s a fair enough question in its own right, and I’ll answer it in a second. But the routine with which we get asked this is telling in its own right because it makes clear that the Tech/Startup sector has, by and large, been programmed to think the model for venture success goes something like this:
It’s as if it’s now just a matter of course that some percentage of a startup’s equity — very often secured at a brutal valuation and/or in exchange for what are, by definition, the “unguaranteeable” benefits of participating in an accelerator program — is a required ticket for entry into the startup “big leagues”.
Not only does this not have to be the case, but there is meaningful upside to doing away with this “convention”. Indeed, by not taking any equity, GCT is able to attract a caliber of entrepreneur and company that doesn’t buy this standard “initial value exchange”. Our application window for the 2015-2016 class has been open for only a few weeks, and already we are seeing the same phenomenon we saw last year: we are attracting experienced founders who have already built and sold successful businesses; first-time founders with formidable pedigrees and deep industry knowledge; companies with the dual conviction that they are:
1.) Building something big and important, and
2.) Don’t need to take a bad deal to achieve growth.
So back to the question at hand: What’s in it for us? By dropping the equity requirement while still providing an overabundance of top-flight resources to help our companies succeed, we’re able to attract the absolute best startups in NYC. By providing space in our building for them to grow into, we’re providing clarity to the typically stressful question of real estate needs as they relate to variable and unknowable company growth rates. The net result? We are creating a single point of density of premier startups that compounds annually to the benefit of our companies, and, in turn, to the benefit of Grand Central Tech.
Another way of putting our model is as follows: Grand Central Tech is a platform business. Like any platform business, the opportunity is to take a cut of each transaction on the platform while also generating upside from the value of the entire platform (like a bank servicing individual accounts and investing the total value of all accounts). We’re forgoing using the former lever, in the hopes that the value of the entire platform will be made that much richer as a result, and are focusing our efforts there. I guess you could say we’re doing away with startup ATM fees?
More broadly speaking though, the question of how startups gain access to the resources they need doesn’t have to start with who gets what. Indeed another way to answer the question: “What’s in it for us?” could be, “The satisfaction of supporting the growth of the NYC startup/tech sector the right way, without having first calculated how we might be able to extract the maximum possible benefit for ourselves, personally” — but we don’t want to step on any toes…
Applications are now open for our 2015-2016 class. We would encourage interested companies to apply ASAP. We are also hosting an open house on April 1 from 6-8pm should you want to come by and see the space, or ask any questions. Please RSVP here.