#95 Code Cubitt: Coachability Is Critical
Code Cubitt, Managing Director of Mistral Venture Partners, shares insights on evaluating founders, decision-making, and common scaling mistakes. He discusses the importance of vision, coachability, and strategic planning, drawing from his experience as a VC and entrepreneur.
Deep Dive Analysis
17 Topic Outline
Code Cubitt's University and Early Career Journey
Transition to Venture Capital and COO Insights
Evaluating Founders: Vision, 'Inception' and 'Wantrepreneurs'
Mistral's Upside-Down Investment Strategy and Power Law
Understanding the Entrepreneurial Ecosystem
Common Patterns of Startup Failure
Challenges of Scaling Companies and Co-founder Dynamics
The Importance of Entrepreneurial Coachability
Attributes of Effective Board Members
The VC Investment Decision-Making Process
Strategic Investment at Seed, Series A, and Series B Stages
Balancing Technology Investment with Sales and Customer Focus
The Visionary CEO and Navigating Change
Managing Investment Mistakes and Company Turnarounds
CEO Adaptability During Crisis (COVID-19 Example)
Mis-undervalued Assets: Applied Technology and Distributed Ledgers
Personal Philosophy on Learning, Failure, and Happiness
7 Key Concepts
Wantrepreneur
A 'wantrepreneur' is someone drawn to the perceived coolness and persona of being an entrepreneur, often seeing themselves as an underdog. This differs from a 'born entrepreneur' who possesses an inherent drive and optimism to envision a different future and actively overcome barriers to achieve it.
Upside Down Investment
This investment model involves making small initial investments in many seed-stage companies, followed by significant time investment to build rapport and evaluate the founder and market fit. The larger capital commitment is reserved for the Series A stage, only if the company proves its worth and the market validates its product.
Power Law of VC Economics
This principle describes the reality of venture capital where a large majority of investments fail, and only a very small number of highly successful companies (unicorns) generate the vast majority of returns for a fund. It implies that a VC fund needs to find one 'unicorn' out of a portfolio of 20-30 bets to meet its limited partners' return expectations.
Nose In, Fingers Out
This describes the appropriate role of a board member, especially in later-stage companies. It means being deeply informed and aware of the company's operations ('nose in') but refraining from direct management or dictating specific actions ('fingers out'). The role is to observe, advise, and react, not to run the business.
Business as a Machine in a Box
This mental model views a business as a system where capital is invested on one side, and the goal is to generate a greater return of capital from the other side. It simplifies the complex operations of a business into a clear input-output mechanism focused on profitability.
Utility Function (Value Proposition)
This concept refers to the value a product or service provides to a customer, often quantified by economic benefit. For example, if a product costs $100,000 but saves the customer $1 million (a 10x return), it demonstrates a strong utility function and makes the purchase highly compelling.
Advantageous Divergence
This concept suggests that true success comes not just from diverging from conventional wisdom or common practices, but from being correct in that divergence. It highlights the challenge for leaders to have strong, contrarian opinions that prove to be right, rather than simply being different.
11 Questions Answered
The COO is critical as the operations person who fulfills the CEO's vision and dreams, acting as a counterbalance to the CEO's enthusiasm. They serve as a level-headed, pragmatic co-founder, cleaning up after the CEO and ensuring promises are met.
VCs often start by asking about the 'inception' story – why the founder is so driven to solve a problem. They look for genuine passion and a vision for the future, distinguishing true entrepreneurs from 'wantrepreneurs' who might be motivated by the persona rather than deep conviction.
Many startups fail due to a lack of basic business fundamentals, such as not having a clear financial roadmap or honest revenue expectations. Human dynamics like unchecked ego, poor communication with employees and investors, and a failure to build a strong culture also contribute significantly to failure.
Common mistakes include expecting an even co-founder equity split (e.g., 25% each) to scale effectively, which rarely happens. Nepotism, such as husband-wife teams, can also create agency issues and insulate leadership from critical information, leading to problems as the company grows.
Coachability stems from a willingness to be introspective and to respect feedback from the market, employees, customers, and investors. A coachable entrepreneur listens to ideas and perspectives, contemplates them, and then dictates their own path, rather than immediately dismissing challenges.
At early stages, board meetings function more as brainstorm sessions for strategic decisions, with a focus on empathy and collaboration. For later-stage, larger companies, the board's role becomes more formal, centered on governance, observing, advising ('nose in, fingers out'), and reacting rather than direct management.
At the seed stage, investment is primarily for customer exploration, early trials, and validating the product's utility without proven product-market fit. Series A funds are for gaining momentum and proving market fit to scale, while Series B is entirely about scaling the proven business model rapidly.
Founders often fall in love with 'gee whiz' disruptive technology, but the world may not share that enthusiasm. A better mousetrap doesn't guarantee success; strong marketing and sales are crucial for finding real market pain, customizing products, and effectively bringing them to customers.
A 'B CEO' is articulate, knowledgeable, and meets numbers, but an 'A CEO' possesses the foresight to anticipate significant changes (6-12 months ahead) and the decisive ability to alter course, even when facing opposition from those content with the status quo.
Failure should be seen as a feedback mechanism that allows for improvement. It's an opportunity to learn what doesn't work and adjust strategies, rather than a definitive end.
The first level is physical, engaging the five senses through experiences like good food, movies, or travel. The second level is about learning, experiencing an endorphin rush when new knowledge clicks. The ultimate level is philanthropy, giving back, teaching, and making others' lives richer and more meaningful.
55 Actionable Insights
1. Be a Visionary, Decisive CEO
Strive to be an “A CEO” by anticipating significant changes 6-12 months ahead of others and possessing the decisiveness to alter course, even when facing opposition from those content with the status quo.
2. Cultivate Coachability & Introspection
Develop coachability by being introspective and willing to respect feedback from all sources—market, employees, customers, and investors—as dismissing it often leads to failure.
3. Articulate a Clear Vision
Develop a clear vision of the future that doesn’t exist today and be able to articulate it effectively to convince co-founders, employees, investors, and customers to join and see that vision with you.
4. Practice Advantageous Divergence
To achieve significant success, cultivate the ability to diverge from conventional wisdom with a strong, correct opinion, going against the grain when necessary.
5. Check Ego, Prioritize Communication
Avoid failure by checking ego at the door, ensuring open communication with employees and investing partners, and actively building a culture of success and winning within the company.
6. Embrace Failure in High-Risk Ventures
In high-risk environments like venture capital, cultivate comfort with failure, understanding that a significant portion of ventures will not succeed, and this acceptance is necessary for the role.
7. Act Decisively in Crisis
In times of crisis, make drastic and decisive decisions early, even if they seem extreme, as these “no regret moves” can prove correct and beneficial in the long run.
8. Be an Optimistic Barrier-Eliminator
Strive to be an optimistic entrepreneur who clearly sees a different future and actively works to eliminate all barriers to achieving that vision, rather than feeling oppressed by society.
9. Entrepreneurship for World Impact
Embrace entrepreneurship as the hardest job you’ll love, recognizing it as the unique opportunity to create significant impact in the world as an individual in business.
10. Prioritize Customer Pain Over Tech
Avoid the mistake of relying solely on superior technology; instead, prioritize extensive customer exploration to identify real market pain points and customize your product to solve those specific problems.
11. Talk to Customers First
Always engage with customers first to understand their needs and problems, and only then proceed to build solutions that directly address those identified issues.
12. Marketing & Sales Trump Ideas
Recognize that effective marketing and sales are more critical for success than just having great ideas or superior technology.
13. Develop Honest Financial Roadmap
Create a clear, intellectually honest pro forma financial model that details spending, revenue expectations, and a realistic plan for customer acquisition and communication, as this structural plan is fundamental to avoiding failure.
14. Embrace the Pragmatic COO Role
For a CEO, recognize the COO as a critical operations person who fulfills vision and acts as a level-headed, practical counterbalance to enthusiasm and drive.
15. Structure Co-Founder Equity Wisely
Avoid the common mistake of equally splitting equity among co-founders without vesting, as this often leads to issues when some co-founders leave but retain significant unearned ownership.
16. Avoid Nepotism in Leadership
Be cautious of husband-wife or other close familial teams in key leadership roles, as it can create agency issues, insulate leadership from critical information, and hinder effective communication and feedback from direct reports.
17. Forward-Look Equity Dilution
When structuring early-stage equity, forward-look the capitalization table to ensure that after future dilution from multiple funding rounds, founders will still retain enough equity to remain highly motivated for the long haul.
18. Balance Equity for Motivation
When determining valuation and equity splits, ensure the investor syndicate owns enough, the founding team retains sufficient equity for motivation, and the employee option pool is attractive enough to secure talent for long-term success.
19. Adopt Phased Commitment Strategy
Consider investing a small amount of capital and a large amount of time early on to build rapport and assess a founder and market, then significantly increase investment only after proving worthiness and product-market fit.
20. Prioritize People in Partnerships
When evaluating potential partners or team members, focus on meeting them, getting to know them personally, and deciding if they are people you genuinely want to work with.
21. Build Relationships on Trust
Recognize that integrity, trust, and rapport are integral to successful relationships, as talented and trustworthy people are at the core of all successes.
22. Uncover Core Entrepreneurial Drive
When evaluating an entrepreneur, ask about the inception of their idea and their deep motivation, looking for a personal problem they’re compelled to solve rather than just a job or desire to exploit technology.
23. Humble About Predicting Success
Maintain humility and acknowledge the impossibility of consistently picking “unicorns” or guaranteed winners, especially at early stages.
24. Earn Your Partner Status
As an investor or collaborator, understand that you must be a good partner and actively earn the right to participate and influence, rather than assuming it.
25. Leverage VC Pattern Matching
Recognize that venture capitalists bring valuable experience in pattern matching and broad exposure to industry trends, customer behavior, and talent, which can give an edge to venture-backed companies.
26. Evaluate Team, Tech, Market
When considering an investment or major project, assess three core components: the quality and fit of the team, the viability and innovation of the technology, and the size and growth potential of the market.
27. Conduct Thorough Diligence
For due diligence, actively talk to customers and personal references, deeply understand and challenge the business model, and get to know the team even better to establish all necessary check marks.
28. Set Clear Founder Expectations
Clearly communicate upfront with founders about investment expectations, such as not providing bridge notes or follow-on funding unless specific market-validated milestones are met.
29. Partner Through Thick and Thin
Commit to being a partner with entrepreneurs through all challenges, working hard even with companies that may not achieve massive success, to preserve capital and leverage experience.
30. Actively Manage Failing Investments
When investments go sideways, actively advise companies to sell early to recover capital, or consider leadership changes, to try and right the ship.
31. Use Phased Investment to Manage Risk
Implement a phased investment strategy, deploying minimal capital initially, to create a structural gate for thorough diligence at later stages, allowing you to walk away from early bets with minimal loss if they don’t track.
32. Prudently Take Cash Off Table
As an entrepreneur, consider it prudent to take some cash off the table at the Series B stage (or later) to alleviate personal and family stress, but avoid expecting a secondary at the seed stage.
33. Seed Stage: Customer Exploration
At the seed stage, prioritize extensive customer exploration, talking to potential users, and conducting early trials to gather indications of product utility and market need, rather than assuming product-market fit.
34. Series A: Prove Market & Scale
For Series A funding, demonstrate sufficient momentum and early economic ratios (e.g., LTV to CAC) to prove a viable market for your product, validating its potential to scale with more customer conversations.
35. Series B: Scale Proven Model
At the Series B stage, the focus shifts entirely to scaling a proven business model by investing in growth, assuming the “machine” is working and ready for accelerated expansion.
36. Hire & Retain for Adaptability
When facing significant change or restructuring, prioritize retaining and hiring individuals who demonstrate a strong ability to adapt quickly to new realities and challenges.
37. Value Diverse Backgrounds for Adaptability
Recognize that individuals from diverse backgrounds, especially those who have experienced tougher lives or relocated to new countries, often possess greater flexibility and adaptability, which are strong indicators of entrepreneurial success.
38. Use Board Meetings for Strategy
For early-stage companies, view board meetings as opportunities to step out of day-to-day tactical decisions and engage in strategic brainstorming with aligned partners, focusing on core strategic questions rather than just formal governance.
39. Board Members: Show Humility
As a board member, approach meetings with humility and empathy for the intense daily challenges and pressures faced by entrepreneurs.
40. Value Board Meeting Preparation
Recognize that the true value of board meetings lies in the preparation process, which forces CEOs into quiet contemplation, reflection, and accountability, moving them out of day-to-day weeds into strategic thinking.
41. Respond to Challenges Contemplatively
When challenged, respond contemplatively by taking in the feedback, consuming it, and then dictating your own path, rather than reacting defensively.
42. Test Coachability with Challenges
To assess coachability, directly challenge assumptions and approaches in initial meetings and observe how individuals react, looking for contemplative responses rather than defensiveness.
43. Aim to Be Dumbest in Room
Strive to be the “dumbest person in the room” by surrounding yourself with people smarter than you, as this provides a privilege to learn from and work alongside innovators and change agents.
44. View Failure as Feedback
Embrace failure as a natural and acceptable feedback mechanism that provides opportunities for improvement and learning.
45. Listen More, Talk Less
Practice listening more and talking less to discover what others know, thereby doubling your knowledge base without giving anything up, and learn from everyone around you.
46. Be a Knowledge Detective
Adopt a “detective” mindset, assuming everyone knows something you don’t, and make it your mission to uncover and learn that unique knowledge from them.
47. Curate Info by Studying Failure
For professional development, actively consume information (e.g., podcasts, books) that focuses on startup failures to identify mechanisms to avoid, rather than solely looking for success indicators.
48. Curate Info for Life’s Questions
Dedicate part of your information consumption to exploring fundamental questions about the meaning of life, happiness, and truth, often by reading a wide range of biographies for insight.
49. Optimize Info for Key Nuggets
When consuming information, aim for volume and speed (e.g., listening at high speeds) to quickly extract the few key “nuggets” or insights from each source, rather than focusing on every detail.
50. Pursue Higher Levels of Happiness
Recognize three levels of happiness: physical pleasures, the endorphin rush of learning new things, and the ultimate joy derived from philanthropy, giving back, and enriching others’ lives. Focus energy on the latter for ultimate fulfillment.
51. Help Others Succeed
Understand that the most rewarding experiences in life are often reserved for those who actively help other people succeed.
52. Recommit After Setbacks
If you face academic or personal setbacks, take time to reflect, understand the value of your goals, and then renew your commitment to success to turn the situation around.
53. Value Education & Self-Reliance
Recognize that life can be hard on your own and that an academic degree or schooling can be a significant help, reinforcing the commitment to personal success and moving forward.
54. Invest in Tech-Knowledge Collision
Look for investment opportunities at the intersection of disparate areas of technology and knowledge, where the “collision” of disciplines (e.g., AI with case law, behavioral psychology with debt relief) creates powerful solutions.
55. Leverage Distributed Ledgers for Trust
Consider leveraging distributed ledger technologies like blockchain to establish “liquid trust” in business transactions, especially as the world becomes more interconnected and trust becomes increasingly vital.
7 Key Quotes
This is what separates, you know, really good entrepreneurs from the rest of the pack is they have that vision. They have that crystal ball that they can see. And more importantly, they have the ability to articulate it and convince not only co-founders and employees to join, but also investors and customers to see that vision with them.
Shane Parrish
I have a friend who described being an entrepreneur as eating glass every day and then getting up the next day and wanting to do it all over again.
Shane Parrish
I often say, and I, and I, it was a bit tongue in cheek, but it's the entrepreneur's job to lie to me until I cut them a check. And it's my job to pick the best liar.
Code Cubitt
No question that marketing and sales trump ideas and technology all day long.
Code Cubitt
My goal in life is to be the dumbest guy in the room.
Code Cubitt
failure is okay. Failure is actually a feedback mechanism to allow you to improve.
Code Cubitt
The best things in life are reserved for people who help other people succeed.
Shane Parrish
1 Protocols
Mistral Venture Partners' Investment Process
Code Cubitt- Initial Meeting: Be introduced to a company through a reputable source (e.g., limited partner, another VC, accountant, lawyer).
- Initial Assessment: Decide if there is interest based on the team, technology, and market fit (e.g., enterprise software, big/growing/interesting market).
- Diligence: Conduct thorough research by talking to customers and personal references, understanding the business model, and challenging assumptions.
- Valuation & Structure Discussion: Have a conversation to agree on valuation, investment amount, and expectations for both sides.
- Agreement in Principle: Draft a term sheet and negotiate terms with the entrepreneur.
- Syndicate & Definitive Docs: Ensure a full syndicate of investors is in place and prepare all necessary legal documents (which can cost $20,000-$30,000 per side).
- Closing: Finalize the investment by wiring checks.
- Post-Investment Plan: Within 90-180 days post-investment, set up Key Performance Indicators (KPIs) that the company agrees to track and aim for.
- Operational Process: Move into the ongoing operational support phase with the company.