BITBLAZE: How a regional startup anticipated a trend in the Russian electronics market

An interview with Maxim Koposov, founder and director of BITBLAZE.

How and to whom did the idea for a start-up come? Why computing technology? How was the concept born?

We came to the idea of the startup gradually. Our main activity was to provide access to game servers and servers with media content. Accordingly, we needed low-cost servers capable of storing large amounts of data. We tried to create them ourselves, for ourselves. And since we had created them, we decided to try to sell them to external clients.

In 2014, we were invited to StartUP-Sabantui in Naberezhnye Chelny, and we agreed - we were curious about how the startup industry works. And we decided to present our spin-off project - the production of computing equipment. It aroused great interest among both potential investors and the audience of the presentation. As a result, this area became our main focus.

What resources were there at the start - financial and labour?

At the start there was a team of founders: myself, Evgeny Teplyakov and Alexander Titarenko. By the time we started the project, we already had a legal entity registered in 2009. By the time we applied for StartUP-Sabantuy, we had already been working together for several years.

I had a technical background - I worked as a system administrator in one of the first Omsk Internet providers, then in ER-Telecom. In those days, internet speeds did not allow us to watch films online, so we created a service where users could watch films and play games on our servers. The challenge was to create low-cost, high-performance servers, and we had a good understanding of the topic.

We began to think about how to stand out against the background of competitors - cheap Chinese equipment and branded Western companies. We paid attention to the appearance of domestic Elbrus processors on the market. There was an assumption that servers based on Russian processors would be in demand, and our potential audience would be companies that are not suited to Chinese or Western solutions. It was just 2014, the first anti-Russian sanctions had already begun, so the moment was right for us.

Who was your first client and how did you reach them?

One of our first customers was the Voskhod Research Institute. The institute was working on the task of transferring the state system for issuing foreign passports from IBM equipment to a Russian platform and was looking for domestic equipment. Our equipment turned out to be the most Russian equipment there could be.

We delivered more than a hundred servers. It was the first such large-scale implementation of civilian solutions based on the quad-core Elbrus processor. And our hypothesis regarding the demand on the Russian market was confirmed.

What difficulties did you face at this stage?

The unique architecture of Elbrus required additional settings and adaptations to ensure compatibility. We coped with some of the tasks ourselves, but some issues could only be solved by the processor developers.

We had to make commitments to the customer - for example, to guarantee the operability of this or that software library. I said: ‘Okay, I will do it’, although I realised that I could not do it myself.

I had to persuade the processor manufacturer, who had enough to do, to help me with the creation of the library. I used all possible channels of communication, communicated with developers, tried to involve them with enthusiasm and prospects of the project so that they agreed to help unofficially.

I was lucky - the head of the company ICST, which was developing Elbrus processors, gave me an employee pass to the enterprise. I had a workplace in the laboratory where my equipment was located. Employees of the company came to see me and asked me: ‘How is it going?’ When I would say, ‘This is not working,’ they would say, ‘Oh, I know who does this, let's go to him.’ Everything happened unofficially, without payment. People there are really passionate about their work, which is not surprising, because the creation of microprocessor architecture is an interesting, meaningful and necessary thing. It's a rare opportunity to do something really cool. It was important to them that the state system would work on their developments. They put their heart and soul into their work, and it was a real gamble.

There were times when something didn't work, and the customer, being a serious partner, started to worry. Then I suggested: ‘Let me report to you daily on the progress to show that we are moving towards the goal.’ It was important to demonstrate to Voskhod that the work doesn't stop.

How did you come to KAMA FLOW? Were there any other investors?

After acceleration at StartUP-Sabantui, we applied for participation in the Russian Startup Rating. Based on the results of the rating, it was possible to apply to various accelerators. We chose GenerationS.

Soon we received a letter informing us that our startup had been reviewed by the expert council, but was not included in the top 100. Nevertheless, we were allowed to attend the event as observers. I was in Moscow at the time and cancelled my evening flight to Omsk, so I stayed behind to see how the accelerator programmes were going. Only those teams that made it into the top 100 could present their projects, and the best of them were selected for the second round - the top 40.
I asked if I could speak outside the competition, and the organisers agreed. Among the experts on the venture capital market was a representative of Mail.ru Group, who noted that we had an interesting startup and expressed surprise that we had not been selected.

Then I decided to investigate how this happened. It turned out that we were not included in the list of best startups because our company had submitted two applications to the Russian Startup Rate: one with a name in English and one in Russian. The applications were submitted by different co-founders without coordination between them. One of the applications turned out to be unfinished, and it received low marks.

I went to the organisers of the Russian Startup Ranking and explained the situation, asking if we could combine the two applications. They agreed, and we got directly into the top 40, bypassing the top 100 stage.

Later, in the IT Park in Kazan, I met with Evgeny Borisov and received an average rating, which allowed us to get into the top 15. Then we reached the top-5. After that, letters started coming in from various foundations, including KAMA FLOW.

We considered two offers - from KAMA FLOW and from the seed investment fund of the Russian Venture Company. The latter, by the way, offered more favourable terms, but in order to receive funding from the fund, we had to prepare a large number of documents. We realised that we risked delaying the process, and the company's situation was such that funds were urgently needed - the employees were already tired of working without a stable salary.

The estimate from KAMA FLOW was slightly lower, but there was no need to fill out a lot of paperwork. We met with Evgeny Borisov and we immediately developed a mutual sympathy, it turned out that our interests coincided in many ways. We discussed the terms of co-operation, and within a few days we flew together to Omsk and showed him how everything worked. Without any unnecessary formalities - the founders of KAMA FLOW saw everything in person, and we hit the ground running.

Subsequently, KAMA FLOW provided us not only with financial support, but also with its own office, its partners helped us to negotiate with clients and taught us a lot.

What prospects do you see for yourself?

Import substitution in electronics, especially in the field of computing equipment, is actively underway now. Companies in our market are doubling their revenue on average every year. We followed the same path: we had 45 million, then 75 million, then 90 million, then 150 million. This year we plan to reach about 300 million in revenue.

Sometimes there are ‘black swans’. For example, it seemed to us that Russian equipment would replace foreign equipment and we would get a huge market. We were betting on Elbrus processors, but suddenly it turned out that they were no longer being produced because access to the Taiwanese factory where the components were made was blocked.

In addition, legislation has changed regarding what is considered a Russian product. Now even things that are not as deeply localised as ours are considered Russian. Roughly speaking, they buy disassembled components abroad and assemble them here.

Some companies have started to do this, including those with more financial resources. And although our technology is still more advanced, from the point of view of the market we have become competitors.

It is not easy to keep up with changing trends, you have to prove yourself in difficult conditions.

Besides, we have discovered an additional opportunity for ourselves: there are companies that put their labels on foreign equipment. Why don't they put them on our products? Their historical sales channels are strong and can be used to sell our products. We are developing this direction: we plan to fulfil two thirds of our deliveries through OEM-partners, and only one third under our own brand.