In February, Compute North, now bankrupt, appeared to be on the fast track to an IPO.
Eden Prairie, a company founded by local tech entrepreneur Dave Perrill, has raised $385 million to build a state-of-the-art data center for cryptocurrency miners. Bitcoin is booming. And the Super Bowl was filled with secret ads.
Within months, the price of bitcoin fell and a showdown by crypto companies, including Compute North, took place. Bankruptcy court filings show that when the cryptocurrency crash occurred, Compute North's main creditor bailed out and the company's big growth plans fell apart.
The company is now trying to rebuild its finances. But it is hard work. It has spun off some of its most expensive crypto data centers and is selling assets.
In a recent interview, Peril said that he was not surprised by the turmoil in the cryptocurrency market. He said: “Markets come and go. But Compute North thought it would be on the long side of the asset sale, not the other way around.
"We've built our business to insulate ourselves from risk. We've always focused on low cost, size and volume, and making sure we have storage. Not being able to take advantage of opportunities hurts now. We thought we'd come around eventually."
For its proponents, cryptocurrency is the foundation of a decentralized financial system free from the interference of central banks and commercial banks. It is a vehicle for predators, financial speculators and, at worst, cybercriminals.
Bitcoin is the most popular of the thousands of cryptocurrencies, and in By November 2021, one bitcoin was trading at $64,000. Last week, one bitcoin was worth around $16,000.
The disaster cost investors hundreds of billions of dollars and included at least nine bankruptcies, leading to the collapse of cryptocurrency exchange FTX this month. .
Many industrial sectors survived. Cryptocurrency exchanges such as FTX and merchants, lenders and service providers such as Compute North are in decline or in bankruptcy.
The big question now is whether the [crypto] industry will survive. said Vivian Fang, a professor of mathematics at Minnesota's Carlson School of Management. He thinks he will. "Crypto winters" have happened before.
"I'm cautiously optimistic about the future," Fang said. But right now, the cryptocurrency landscape is fragmented.
Calculate the rapid growth of the north
Compute North is one of the largest data center operators in the United States that houses computers dedicated to cryptocurrency mining.
The same goes for Core Scientific, which operates a large crypto data center in North Dakota. The Austin, Texas-based company warned last month that it would file for bankruptcy and default on significant debts.
Shares of Core Scientific are trading at around 13 cents, down from $12 in November 2021. That same month, Core Scientific opened a $100 million data center in Grand Forks with a $269,000 loan from the city.
Compute North primarily hosts computers owned by other companies and individuals. Computers work around the clock to solve math problems in exchange for cryptocurrency rewards.
Importantly, Compute North also hosts power contracts for miners who need power.
Compute North was founded in 2017 by Perrill and PJ Lee, who own 24% and 23% of the company respectively; Stocks are at risk of bankruptcy.
The danger is the computer man. He started his first job 30 years ago at the age of 14, hosting online message boards from his home in Waconia. This company is an Internet service provider with 15 employees, and in 2006, it had revenues of about $3 million.
Lee is an energy finance guy. EverStream Energy Capital Management, founded in 2012, focuses on investing in renewable and sustainable energy projects. Prior to that, Lee was CEO of Black River Assessment Management, then a division of Cargill.
Compute North has two small cryptocurrency mining sites in South Dakota and Texas with a combined generating capacity of about 20 megawatts. In the year In 2021, it launched a massive 100 megawatt cryptocurrency mining station in Kearney, Nebraska.
Then in February, Compute North was hit with what appeared to be a financial crisis. It took a $385 million loan from San Francisco-based Generate Capital to fuel the Kearney facility's ambitious expansion plans.
Top of Slate North's list is a 300-megawatt project called Wolf Hollow, located about 70 miles from Dallas, Texas. Wolf Hollow was partially closed earlier this year.
Compute North has partnered with renewable energy giant NextEra to build a 280MW crypto hub in West Texas. Some of them went online this summer.
Decline quickly
When Compute filed for Chapter 11 in U.S. Bankruptcy Court in North Texas on Sept. 22, its 2022 revenue was $96 million, triple the 2021 figure. The workforce has grown to 140, compared to 30 at the start of 2021.
"It was only right that we were the biggest company in the world to do this," Perry said of the cryptocurrency hosting business. In fact, Compute North is set to join the ranks of publicly traded crypto companies earlier this year.
In March, the outlook was favorable enough to pay Compute North a $300,000 bonus to Berl and $240,300 to former Compute North chief financial officer Tad Piper, according to bankruptcy filings.
Perry, who stepped down as CEO two weeks before filing for bankruptcy, received $600,000 through September 2022.
In the year In 2022, the construction of Compute North, the decline in the price of cryptocurrency and the increase in electricity costs, due to the increase in the price of natural gas. It was a toxic mix. Energy is the biggest cost of bitcoin mining.
Then came Compute North's bankruptcy hammer; Generate capital out.
Generate, which received $101 million of a $385 million commitment from Compute North in the second quarter, has stopped funding projects other than Kearney and Wolf Hollow, Compute North said in its bankruptcy filing.
At the end of July, Generate Compute North announced that it was in technical default, which means that although the company is making payments on the loan, it has a default on the loan agreement. The following month, Generate effectively acquired the Kearney and Wolf Hollow projects.
Kearney was Compt North's main source of funds. "It was our main project," Beryl said.
In a bankruptcy auction, Generate Capital bought Compute North's stake in both projects for $5 million. The developer did not return calls for comment.
Chapter 11 allows a business to reorganize its finances while being protected from creditors, unlike Chapter 7 bankruptcy.
An uncertain future
It's unclear how much of Compute North remains to be fixed. When the company filed for bankruptcy, it owed creditors $500 million.
Under the NextEra joint venture, it is preparing for a $99.8 million secured loan. $21 million is his unsecured creditor and his biggest client, Marathon Digital Holdings, is one of the biggest bitcoin miners in the world.
"The goal has always been to come out of the restructuring (from bankruptcy) as a reorganized company and continue to grow," Perel said. But without Kearney's Wolf Hollow projects, "the path forward is going to be tough," he admits.