Digital Social Hour
Avoid These Venture Capital Pitfalls: A Founder’s Journey | George Stoitzev DSH #885
Wed, 13 Nov 2024
Dive into the exhilarating world of venture capital with this episode of the Digital Social Hour featuring Sean Kelly and his guest! Discover the highs and lows of a founder's journey as they navigate the challenging landscape of venture capital. From e-commerce successes to software ventures, this conversation is packed with valuable insights you won't want to miss. Join the conversation as they explore the critical differences between cash flow-based business models and venture-backed approaches. Don't miss out on the exciting discussion of leveraging new opportunities, the power of organic growth, and the importance of building a solid foundation. Tune in now to uncover the secrets behind successful entrepreneurship and how to avoid common pitfalls. Watch now and subscribe for more insider secrets. Hit that subscribe button and stay tuned for more eye-opening stories on the Digital Social Hour with Sean Kelly! #dropshipping #shopify #digitalmarketing #makemoneyonline #ecommercebusiness CHAPTERS: 00:00 - Intro 00:25 - George's Background 05:00 - BetterHelp 08:20 - Buying Generic Programs 12:05 - Top 1% Students Differences 17:29 - Free Consultations 19:34 - Partner Creation Strategies 21:54 - Current Call Availability 25:08 - Income Disparities: 5k vs 200k 28:10 - Path to Billionaire Status 31:13 - George’s 5-Year Plan 32:44 - Impact of Words 34:30 - Consequences of Poor Decisions 41:55 - Religion Discussion 44:56 - George's Perspective on God 49:50 - Booking a Call with George 50:18 - OUTRO APPLY TO BE ON THE PODCAST: https://www.digitalsocialhour.com/application BUSINESS INQUIRIES/SPONSORS: [email protected] GUEST: George Stoitzev https://www.instagram.com/georgestoitzev/ https://www.redactedstudio.io/ https://www.redactedcapital.com/ www.youtube.com/@GeorgeStoitzev SPONSORS: BetterHelp: https://www.betterhelp.com/DSH LISTEN ON: Apple Podcasts: https://podcasts.apple.com/us/podcast/digital-social-hour/id1676846015 Spotify: https://open.spotify.com/show/5Jn7LXarRlI8Hc0GtTn759 Sean Kelly Instagram: https://www.instagram.com/seanmikekelly/
Chapter 1: What is George's background in e-commerce?
All right, guys. George Stuitzev.
Stuitzev, yeah.
Stuitzev. I tried. What is that? A Bulgarian. Bulgarian. Wow. Is that where your family's from? Yeah. Nice. Thanks for coming on, though. We've known each other for, man, what, seven, eight years? Seven, eight years.
I think it was 2018. Yeah, you were doing e-commerce back then. E-commerce back then. Phone charging cases. Yeah. Mainly people know me from e-commerce. Yeah. I started in 2013, was the first time I had a Shopify store and I've done over $15 million in e-commerce sales. And then in 2020, I decided to branch away from e-commerce and dip my hand in software.
Chapter 2: What are the differences between venture-backed and cash flow-based business models?
So I started a venture-backed software company called Blue Receipt, which was SMS marketing for Shopify brands. That was the first time I raised capital, so we raised $1.5 million of venture-backed capital. But then what I realized was that was a completely different game than a cash flow-based approach.
You see in e-commerce, what you want to do, especially if you're dropshipping, you want to make your money tomorrow. Whereas in the software game, there's these things called payback periods. So imagine a lot of these companies, they'll pay back the money they spent to acquire a customer 15 to 28 months ahead of time.
Yeah.
And so you need a lot of that capital to burn to be able to sustain that long-term value of that software product. So what happened was we raised this money. When you raise money, you become almost a glorified employee because now you're not paying yourself out. You're paying yourself out a salary, like a W2 employee. And now you're relegated to this opportunity that you're kind of stuck in.
And what happened was a lot of my competitors, especially in 2020, 2021, raised so much capital. Attentive Mobile, one of the biggest competitors, raised $1 billion. Damn.
in a in a you know essentially a coffin they started giving away 500 gift cards to amazon just to book a demo call with them giving break even pricing because they had all this money they needed to spend clavio raised 400 million postscript raised 250 million emotive raised 50 you had a lot of these other ones raised 10 15 and then some auxiliary competitors like active campaign raised 250. and what i realized was
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Chapter 3: What are the consequences of raising venture capital?
Fuck. Now I'm in a bad position. I'm in a rock and a hard place where I can't just say, you know what? I don't want to do this business anymore because, remember, I have obligations. I have employees. I've raised this capital. I can't just walk away. But at the same time, I can't just do other businesses to make an additional income, like other ventures, because I feel like I'm committed.
I want to be all in on something. And so then in 2022, I was like, you know what? I got to sell this company because... it didn't seem like when you go into a venture-backed approach, you want to go into a venture-backed approach for two reasons.
One is you're looking for 100X outcome, or two, you're looking to validate an unknown opportunity, and there's a lot of capital-intensive things that need to happen before validating that aspect. If that's not going to be the case, there's no need for you to raise venture-backed capital. And so for the vast majority of people that I recommend today,
For any young person, there's only a couple things you got to do. I would focus on dropshipping, number one, because you're making cash the next day. Info products, building on your social presence and producing things that have massive gross margin. I'm talking 90% margin or more with almost no upfront capital. That's the number one thing you need to do.
And then you're going to be taking that distribution and transitioning it into other aspects. Maybe it's branded e-commerce. Maybe it's software products. Maybe it's something else. But...
everyone that i'm seeing talented today they're not taking on you know these more standard approaches of business back in the day everything nowadays because distribution's so cheap if you're good with organic you want to be focusing on things you're making money the same day with huge margin and you're not taking on crazy upfront capital risk there's no there's no need at all right because a lot of people see these headlines of people raising millions and they assume they need to do that for their company
For every one person you see that has an amazing success story of selling their company or something really amazing happens, there's 100 dead bodies you don't hear about. And that's, by nature, the game of venture capital. The venture capital is like placing a number on a roulette wheel. You're supposed to lose 36 times for every one hit.
And so the venture capitalist, well, he's somewhat concerned about the dead bodies laying around, but he's not the dead body laying around. See, all the people who took on that investment are now obligated to that position on doing something. And for a lot of times, there's a lot of stories where even if you raise so much capital, you're in a bad position. You raised 40 million bucks.
That's not also a great thing because now you have a threshold to uphold. If you sell your company for 50 million, well, there's a waterfall schedule where the- This episode is brought to you by BetterHelp.
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Chapter 4: What strategies can founders use to avoid common pitfalls?
Give online therapy a try at betterhelp.com slash DSH and get on your way becoming your best self. My fiance, Ariel, plays a big role in my mental health, helping me realize my true potential. Everyone's trying their best around you, so take time to appreciate someone close to you. I've tried therapy in the past and it helped me go through some tough times.
When I was in college dealing with mental health, I was on prescription medication. I actually had agoraphobia when I was in college and therapy helped me figure out some answers to how to fix that problem. For two months, I couldn't even leave my house or I would have a full on panic attack. So I love companies like BetterHelp that can get therapy in front of the masses.
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Check them out now. Investors get their money first, depending on the liquidation preference, and then the debt gets paid out and everything else, and you get the little sliver at the end. So it's about the value you create. And nowadays, I mean, they're super successful people. Like one of these young killers that I know, his name is Rib and Daniel and Moosey, they created a software product.
And in a couple of months, they're crushing over $500,000 in monthly recurring revenue. Wow. With absolutely no... Cost to create this product, essentially. Damn. Why? Well, because Moosey and Daniel, they're the one in number two on WAP for distribution, for short form editing, for making money on TikTok, making money with shorts.
And the product called Creo is creating faceless content, creating AI generated content and allowing people to make money. So if you're building software today or you're building anything in that regard, you want to be thinking about how does the software make someone money? Because if it's costing $100 a month and it's making them $500 a month, That's where they're going to stay in.
And that's where you'd have a reduction of churn. But simply saving people time or all this other stuff is not how most software is really growing today rapidly. So your advice would be get something with high margins and operate lean. Operate lean. Dude, there's so many amazing AI tools today. The cost of executing a product is like this today.
The most expensive thing today is distribution by far. And it's only going to get more expensive. Marketing. Marketing, but not just marketing. It's really having an identity and a piece of resonating content that captures an organic flywheel. That's really the most important thing because you can layer on paid ads afterwards, right?
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Chapter 5: How can founders leverage their network effectively?
You could pour the gas easily, but without that initial flywheel, you're kind of left chasing your tail because as soon as you stop your ads, it fizzles out. You see a lot of these people or a lot of these brands where they'll make the vast majority of their revenue from paid ads, but no one's commenting on their stuff. Nope.
They might have half a million followers and they have five people liking their post on Instagram. Yeah. And that discrepancy happens because there's no underlying value of their organic distribution. No one really cares about them in particular or the order of offer. They're just selling people in pain in a specific moment of time to get that sale.
But then people fall off tremendously after that. I've noticed that. The people who make the most money on info... get the least amount of results. And it's this kind of paradoxical situation because I talked to thousands of the world's best entrepreneurs. My network is like a very, very dense network of people who are absolute killers.
And across the board, almost no one has really ever bought a generic ClickFunnels based type of program. Yet those ClickFunnels based type of program, those are the ones making the most amount of money. I'm talking about 10, 20, sometimes even someone like, I don't want to call names, but over $100 million. And no talented person has ever gone through that.
Chapter 6: What is the significance of organic growth in business?
In fact, I don't know someone who's successful who's gone through those types of programs. The people who are very talented, what they do is they'll focus in on something specific, a specific niche, and then they'll go find a relevant person in that corridor who doesn't have such a big following because they can get personalized support.
And they can build out their mastermind in their kind of smaller community to get over the threshold. Their action takers themselves are not looking for a handout. The people who make the most money, they're selling community college level people. They're selling people who are in pain, who don't have that much money.
They have a couple thousand dollars and they need to do something because they've been thinking about it for so long. Those people are never going to get success. In fact, there's no information or education that can make them successful because you've got to move their hand. Yet those are the people you can consistently sell on a high ticket over and over again like butter.
and it's just like add to a sales call to a pain point to get a sale and the drop-off rate is like that because remember these are i mean community college level talent they're not talented individuals they're 26 to 35 they're not going to be the next e-commerce superstar i'm sorry they're not they're not that's why you see them getting called the scammers because they're
Yeah, a little bit because, I mean, scam by definition is you're saying a promise that you can't fulfill upon. I don't know if I would classify it such a scam because a lot of these times these people are in pain and they just want education. They just want like a...
You know, imagine you're 28 years old, you have like $5,000 in your bank account, you're working a regular job, and you've been thinking about making money online and e-commerce for so long. And yeah, we know you're not gonna make millions on it, right? I mean, let's not kid ourselves, right? If you were that talented, you would have made something happen before, but you just want some hope.
You just want someone to like, you wanna commit some money, you wanna take some action, you wanna just like have some change in your life. And there's nothing wrong with that. And I think that, so to label a total scam, I don't think is the right way to do it. What I'm just saying is that the people that I help with my business model, which is called Redacted, those are the world-class talent.
Across the board, those people, they never buy generic programs. I just never see it. No one really talented is like, oh my God, yeah, I bought this generic program from this ClickFunnels thing and then I became successful. No, they took it upon themselves to take proactive action. They found their small community. They learned from someone in particular, like a mentor.
They built out their connections within the industry. They found the kind of gray loopholes and they made it work. They didn't rely on a program or anything else. They relied upon their own actions and finding their own communities to make it work. Right.
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Chapter 7: How do leverage and community impact financial success?
for your level of talent, for the most part, that could sustain around a $400,000 a year W2 career. It just doesn't exist. And so once you cross over that threshold, you almost can't go back. And so they stay in the industry forever. And so I focus on those people, find those exceptional talents, connect them with the right people, be kind of like their mentor, I'll give you some cases.
In 2020, I did a call with Sebastian Jordi and Jordan Walsh. Wow. During COVID, they were back in their mom's place and they were kind of having a little bit of a rough patch in their life, but they had amazing potential. They had a little under 50K on YouTube. I told them the exact same advice. Double down on your personal brand.
Utilize that niche you were good at, which was e-commerce, to produce better content, to build out your name in the industry. But you're going to make all the money with your highest leverage, which is going to be your brand identity for larger gross margin things, whether it's education, whether it's software.
Jordan sold his software, and Sebastian Giorgi crushed it with his TikTok low-ticket course for the back-end affiliate commission for Shopify. Yeah. And so both of those cases, you need more leverage and that leverage comes in being a winner in distribution.
And so the same thing over the last year, I've done over a thousand of these consultations with people, I think just as talented as Sebastian Georgie and Jordan Welsh were in 2020. And so imagine three, four, five years from now, I'm investing in individuals. What I mean by that is if I do a call with you, it creates something very different than a piece of content.
It's a relationship that just no amount of content can replace. And it's almost like I buy shares of you in a way where it's like I establish a credit line with someone, a trust level. George has seen me at my lowest, and then George has seen me at my highest. And I can know a person very differently than someone else just meeting Jordan today.
If someone meets Jordan today, they can never really know Jordan in the past. It's not possible. Yeah, they can hear the story, but Jordan's in a different place now in the way that this person's finding Jordan is here. So the relationship can never really be that way. But if I can meet someone here and I can spot that talent, I can be like, dude, you do have this talent.
Let me connect you to these people. And I could be a cause of their next breakthrough. Well, that relationship, imagine those people become hyper-successful well now there's a big deal to be had. Because I'm looking for 10, 20, 100 million dollar deals in the next four to 10 years. And those things take time to marinate. It's like planting a seed.
So the first year in 2023 of Redacted, I essentially planted the seeds. A thousand seeds and I started watering the plants. What do I mean by that? I follow up with people. I encourage them. I introduce them to people. I just invest, invest, invest, invest, invest, just water, water, water, water. And people ask me, George, what can I do for you?
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Chapter 8: What are George's predictions for the future of entrepreneurship?
You're paying for a direct line. That's what you're paying for. Nothing else. Yeah, the access, the relationship. Yes.
The years they spent networking those relationships.
My number one recommendation is if you're in any industry, go after the best people and say, hey, how much can I pay for 15 minutes of your time? 500 bucks. Paying 500 bucks to 1,000 bucks for 15 minutes of their time. There's nothing they're going to tell you, bro. It's not about that. You're not paying. You're paying for the introduction.
You're paying for when you get on a call with them and you impress them. They're like, whoa, okay, I remember this person. Yeah. What I do for Hudson is I connect them with Sebastian Jordan, Jordan Welsh, Brett Malinowski, everyone, and we pay people. We say, hey, Colin, Wade, Houston, we pay them 500 to 1,000 bucks for a 15, 20-minute call.
And then what we do is we say, we take whatever their advice was, because remember, all their advices have some meaning, and then we make sure to follow up with them and say, hey, because of your advice, I'm now on my next level. Mm-hmm.
And then every time Hudson goes to another milestone, we go back to all the people we've ever paid and had a relationship with and say, hey, because of you, that advice you gave me, that's what helped me. We give them a testimonial. They then also promote on their socials. Because how do you provide value to the biggest people if they're selling info? Testimonial.
And the value you provide to them is your testimonial and your success because that's how they're going to get more people. But remember, the people who are doing those testimonials, those people are going to be successful regardless. Yeah. I love it.
That's the reality of the situation. So the people that are doing 20K a month, those are probably more common than the people doing 100K a month. Have you noticed any big differences with those two groups? Leverage. Leverage vehicle.
That's it. That simple? That's it. Wow. I mean, I'll tell you, there's people who make 5K a month who I think are vastly more talented than people making 200K a month.
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