Ilya Rekhter: From setbacks to success, a company’s first year

Megawatt recently celebrated its first birthday, which I must admit feels strange to put in writing. It feels like my son or daughter just turned 1, which is both exciting and bittersweet. Similar to when my real-life daughter turned 1, I feel a sense of excitement while on the other hand secretly wanting time to slow down.

Birthdays serve as great opportunities for reflection, allowing us to look back at the events from the past year.

A hammer looking for nails

Before launching Megawatt, I spent over a year learning about different industries and ideating concepts for startups. Effectively, a hammer looking for nails. This process had its own set of highs and lows, so I invested in some Bitcoin mining computers as a way to generate passive income (well, technically, Bitcoin) while I searched for a problem that I would devote the next decade of my life toward solving.

My daughter had just been born, so plugging in my miners at home was a non-starter—too noisy. Instead, I found four U.S.-based hosting companies, who agreed to operate the miners on my behalf. I was playing the odds—assuming that two of the hosts would likely be sub-par, one would be average, while the remaining one, I hoped, would do a great job so I could consolidate my operation there.

Big mistake. One-by-one, each host started having problems. They either didn’t own their own land, didn’t own their own facilities, didn’t know how to run a business, or, in some cases, all three. Regardless of the underlying problem, the outcome for my miners was the same across each host: They were kicked out and turned into expensive paperweights.

This was a low point. The miners were looking like a sunk-cost investment—generating zero Bitcoin, and I still hadn’t come up with a killer idea for my startup. Worst of all, I had no one to blame but myself!

As the saying goes, necessity is the mother of invention. This low point served as a catalyst to solve both my problems: what to do with my miners and what to focus my next startup on. I set my sights on building a vertically integrated Bitcoin mining business.

Rural-community rebuilds

I ran an exhaustive nationwide energy search, looking for rural areas with affordable, abundant and sustainable sources of energy. While Indiana didn’t have the lowest prices, I learned that a section of our state has an energy mix that is over 80% emission-free.

This piqued my interest, so the next step was to meet with city council members, mayors and economic development groups to see who was interested in bringing a Bitcoin business to their community.

I had no “ask”; my goal was to share what we were planning to build and to educate local communities about a new industry that could help rebuild their towns. I would have had better luck selling time shares on the moon. Half my calls were never returned, and most of my in-person meetings couldn’t get past calling Bitcoin “magic internet money.”

Fortunately, several communities saw the same opportunity as I did: Bitcoin mining could breathe life into rural Indiana towns.

I toured dozens of buildings in once-thriving communities. Most had sat idle for decades, with several crumbling from neglect. One location stood out among the rest: a plot of land that was once home to a thriving 90,000-square-foot industrial warehouse. It had burned down in the mid-’90s, leaving behind a single load-bearing column and portions of its concrete floor.

Not exactly what you picture when you think of “high tech,” but it was perfect for Bitcoin mining.

The demise of the warehouse left enough energy to power eight Walmarts, all of which had been stranded for decades. Plug that into Bitcoin miners, and you get a thriving business, new skilled jobs and taxable revenue. The city council members might not have believed in Bitcoin, but their passion for rebuilding their community was undeniable. If Bitcoin provided that opportunity, they were all in.

Want to work at a startup?

The pieces were starting to fall into place, which meant it was time to start building. Transformers, electrical poles, modular data centers—I thought Bitcoin was supposed to be digital! The work began to pile up, so it was time to recruit a team.

“Hey, want to build a startup with me? You’ll be commuting to a site with a burned-down warehouse. Oh, by the way, it doesn’t have running water, heating or air-conditioning. Not convinced? Well, you haven’t heard the best part: We’re dealing with shipping delays, so we won’t generate revenue for months and can’t pay you! Please, please, don’t all line up at once.”

Great pitch, right? In my next column, I’ll cover how I met Megawatt’s current team, found our first customers, and scaled up to over 1,000 miners.•

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Rekhter is co-founder and CEO of Megawatt.