Oct 27, 2020 · 1h 0m · knowledge-project
#95 Code Cubitt: Coachability Is Critical
0:00 / 0:00
gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
Venture capitalist Code Cubitt joins Shane Parrish on The Knowledge Project to discuss seed-stage investing frameworks, founder coachability, governance pitfalls, and the personal mindset required to turn failure into resilience.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Shane holds 24.6% of the talking time here. How this is scored →
Shane as informed peer 4.6 Guest teaching 4.6 Guest disagreement 1.1 Shane pushing back 1.6
speaking balance: gold is Shane, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 53:45 Defending distributed ledgers as liquid trust
Code directly rebuts Shane's skepticism regarding cryptocurrency anonymity, asserting that decentralized mathematical trust solves foundational transaction problems.
Hardest push from Shane ▶ 53:54 Challenging anonymous paymentsShane explicitly refuses to accept the virtue of cryptocurrency, arguing that anonymous money movement is inherently problematic.
Biggest teaching moment ▶ 19:54 Cap table dilution mechanicsCode systematically walks through mathematical equity dilution across funding rounds to prove why initial 50/50 co-founder splits disincentivize founders at later stages.
Shane holds their own ▶ 47:41 Advantageous divergence and Keynesian frameworkShane demonstrates deep mental-model expertise by synthesizing Peter Kaufman's concept of advantageous divergence with Keynes' view on conventional failure to analyze CEO crisis leadership.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Shane as informed peer | Guest teaching | Guest disagreement | Shane pushing back | Why |
|---|---|---|---|---|---|---|
| Academic Failure and the Road to Resilience | 2 | 2 | 0 | 0 | Shane asks open-ended biographical questions regarding Code's academic dismissal and career path. Code shares personal reflections and his trajectory from engineering to venture capital in an easygoing, collaborative manner. | |
| Evaluating Founders and Inherent Entrepreneurial Drive | 3 | 4 | 1 | 1 | Code explains his core founder evaluation question around inception and distinguishes true entrepreneurs from wantrepreneurs. Shane contributes a complementary metaphor about entrepreneurship being like eating glass. | |
| The Upside-Down Seed Investing Strategy | 4 | 4 | 1 | 1 | Code explains Mistral's upside-down seed strategy of investing small amounts early to buy optionality for Series A. Shane synthesizes the mechanics of optionality and earning partnership rights. | |
| Venture Power Laws and Startup Ecosystem Dynamics | 5 | 4 | 1 | 1 | Shane brings up the necessity of a higher batting average in nascent ecosystems like Canada compared to Silicon Valley. Code agrees and outlines the systemic components required for a complete startup ecosystem. | |
| Startup Pattern Recognition and Common Failure Modes | 5 | 5 | 2 | 3 | Shane challenges the notion of VC skill by asking whether startup success is merely randomness. Code pushes back with evidence on venture-backed success rates and breaks down common operational failure patterns. | |
| Cap Table Mechanics and Avoiding Structural Pitfalls | 5 | 6 | 1 | 2 | Shane inquires whether equal equity splits among co-founders can ever succeed. Code details cap table mechanics and dilution across rounds to demonstrate why equal splits create demotivation and agency problems. | |
| Coachability as the Ultimate Founder Differentiator | 4 | 5 | 2 | 1 | Code describes how he deliberately challenges prospective founders to evaluate their coachability and defensiveness. Shane explores how this dynamic shifts once capital has been deployed. | |
| Maximizing Board Dynamics and Strategic Brainstorming | 6 | 5 | 1 | 2 | Code reframes early-stage board meetings as strategic whiteboard sessions rather than formal governance. Shane reinforces the point with an analogy comparing board prep to business planning and personal coaching. | |
| The Venture Investment Decision Process and Diligence | 3 | 5 | 0 | 1 | Code walks step-by-step through Mistral's diligence and decision process from initial meeting to legal closing. Shane asks whether founders take secondaries at the seed stage, which Code firmly clarifies does not occur. | |
| Company Valuation Frameworks and Funding Progression | 4 | 6 | 1 | 1 | Shane questions how VCs justify seemingly arbitrary valuations. Code educates him on SaaS unit economics, LTV/CAC ratios, and how seed, Series A, and Series B milestones progressively de-risk the business machine. | |
| Technical Founder Traps and Communicating Vision | 6 | 4 | 0 | 1 | Shane cites Bill Gates regarding superior technology losing to distribution and marketing. Code enthusiastically validates the point with the Betamax versus VHS example and reinforces the primacy of CEO narrative. | |
| Managing Underperforming Bets and Navigating Risk | 5 | 5 | 1 | 3 | Shane presses Code on how VCs admit mistakes and navigate sunk-cost fallacy at the Series A stage. Code explains fund-level capital preservation economics and his approach to working through underperforming bets. | |
| Crisis Leadership and Adapting to Permanent Change | 7 | 5 | 2 | 2 | Shane introduces Peter Kaufman's concept of advantageous divergence and Keynesian conventional thinking to evaluate crisis leadership. Code details how decisive early-pandemic CEO actions differentiated top performers. | |
| Applied AI and Distributed Ledgers as Liquid Trust | 5 | 6 | 3 | 4 | Shane directly challenges cryptocurrency and anonymous money movements as potentially harmful. Code defends distributed ledger technology as liquid trust and separates applied AI tools from buzzwords. | |
| Life Lessons, Continuous Learning, and Parenting | 5 | 3 | 0 | 1 | Shane and Code discuss information consumption habits, learning frameworks with children, and the philosophical definition of happiness. The tone is deeply collaborative, mutual, and reflective. |
Statements from this episode (32)
Cubitt: Motorola Canned Its Venture Program During 2008 Crash
“Motorola canned the program effectively in during the oh eight crash.”
Cubitt: COO Role Counterbalances CEO Enthusiasm With Pragmatic Execution
“Yeah, it's critical, right? It's critical in a couple of ways. One, it's the operations person who fulfills on the CEO's vision and dreams and goal, but it's also the right hand person to the CEO, right? So it's the counterbalance of all that enthusiasm and dr…”
Cubitt: 'Tell me about inception' is his first question in every interview
“My first question with every interview is tell me about inception. So why do you want to do this so badly that you're willing to break through walls and spend years in the cold as an unknown at the shot for the shot of being a successful entrepreneur?”
Cubitt: Entrepreneurship is the only way in business to create real impact
“It's the only opportunity that you can have as an individual in business to really create impact in the world. Otherwise you're an employee, part of a big machine.”
Cubitt: Mistral Invests Small at Pre-Seed and Significantly More at Series A
“What we do is we invest upside down. So we invest a small amount at the pre-seed stage and work very, very hard with our entrepreneurs to get to a series A. And at the series A, we invest significantly more than we did at the seed stage.”
Cubitt: Consistently Picking Seed-Stage Winners Is Nearly Impossible
“So our view is that it's nearly impossible to pick winners at the seed stage. There's a lot of memory, I guess you'd say, and hard won battles that, that help guide our decision. But at the end of the day, We are humble enough to know that it's impossible to p…”
Cubitt: VC Funnels Lose Half Their Companies at Every Subsequent Financing Round
“The reality of venture is that at every subsequent financing, about half the deals fall off. And so to become a unicorn is a one in a thousand proposition.”
Cubitt: Only Tier-One Venture Firms Can Rely on Power-Law Returns
“Unless you're a, I'm going to call it a tier one firm who has a history of getting amazing deal flow from the best founders, it's really tough to live on the power law and expect to get a unicorn in every fund.”
Mistral Targets Mid-Hundreds-of-Millions Exits Over Unicorns in Canada
“Especially in, in a tier two market like Canada, if you will, as opposed to Silicon Valley, you know, there's less unicorns born here. So we are looking for the solid, but mid hundreds of millions of dollars exit as opposed to the billion dollar unicorns.”
Cubitt: Poor founder communication with employees and investors signals startup failure
“So it's the ego needs to be checked at the door problem where you have overzealous founders that, Don't communicate with their employees. They don't build a culture of success and winning. They don't communicate with their investing partners. And you can tell …”
Cubitt: Husband-and-wife founding teams rarely work out in venture-backed startups
“Rarely do husband-wife teams work out for a number of reasons, but not least of which, in our view anyway, you know, let's say that the wife is the CEO and the husband is the CTO or the CFO, You know, their direct reports are rarely gonna, you know, not gonna …”
Cubitt: Only 10 to 15 Percent of His Deals Exited Highly Positively
“To the extent that I've done 50 or 60 deals in my career, you know, there's been a lot of scars, a lot of learning, right? So probably only 10 or 15% of those have exited in a very positive way, and that's the reality of the economics.”
Cubitt: Even equity splits fail because future dilution destroys founder motivation
“I don't actually. And so, and the reason is that at the earliest stages, you have to sort of forward look the cap table. In other words, I'm going to raise a seed and I'm going to get 20% dilution to Typically the Series A, another 20 to 30% dilution, and so o…”
Cubitt: Founders Who Dismiss External Feedback and Prioritize Ego Fail
“And at its core coachability is, is sort of a willingness to be introspective and a willingness to respect feedback, whether it's from the market, from your employees, from your customers, from your investing partners. And so the entrepreneur who Dismisses all…”
Cubitt: Great Founders Absorb Investor Advice but Dictate Their Own Path
“I prefer the ones that take it in consume it and then dictate their own path, not necessarily mine. Cause the fact is, you know, they're qualified to run their business. I'm not, I'm qualified to advise and be a mentor, but I'm not qualified to run their busin…”
Cubitt: Early-stage board meetings should mostly be brainstorming, not formal governance
“I generally think of Early stage board meetings as really brainstorm meetings, not board meetings. The board meeting part, the formal part of the governance is five or 10 minutes, right? It's stock option allocation. It's, you know, strategy around syndicate i…”
Cubitt: Large company boards must be 'nose in, fingers out'
“At some level, later stage companies, it's a very different dynamic. So I'm on a bunch of, or I'm on at least a couple of formal, large, a hundred million dollar plus company boards, and it's a lot more formal. It's a little bit more nose in, fingers out. Actu…”
Cubitt: Real value of board meetings is the CEO's preparation process
“It's the preparation process that is really where the value lies. And in that, that quiet contemplation that the CEO goes through, that's out of the weeds, out of the day to day.”
Cubitt: Early-stage legal docs cost $20,000 to $30,000 per side
“It's probably 20 or 30,000 dollars on investor side and company side to prepare those docs.”
Cubitt: Founders should take cash off the table at Series B, not Seed
“I think it's probably wrong to assume that you're going to get a secondary at the seed stage every once in a while at a series A or series B, typically a series B. And I think it's prudent for an entrepreneur to take some cash off the table. Generally, you kno…”
Cubitt: VCs Taking Excessive Equity Destroy Founder Alignment
“At the same time, the founding team needs to have enough equity to make it worth their while. And I think some VCs have it upside down where they say, well, we're going to own all this business, but then you've lost alignment of your founder. And if you lose y…”
Cubitt: Seed-Stage Startups Rarely Have Product-Market Fit
“At the seed stage where we play, rarely do we know we have product market fit. So it's a lot of customer exploration. A lot of talking to customers, some early customer trials, some indications that the product does what it says it's going to do, and we explor…”
Cubitt: Series A Requires Proven Unit Economics Before Series B Scaling
“Going into the Series A, you have to have enough momentum and some early economic ratios, LTV to CAC, for example, to prove that there's a market for your product. And so the Series A investors want to talk to a lot more customers and validate that this thing …”
Cubitt: Marketing and sales trump ideas and technology all day long
“No question that marketing and sales trump ideas and technology all day long.”
Cubitt: Founding startup teams rarely finish, and that is appropriate
“Cause it's not always necessarily the team that starts doesn't necessarily finish. In fact, that's most appropriate.”
Cubitt: Hands-on VC work with struggling startups can preserve half the fund
“And we think that the economics of that provide us with a 50 or a hundred percent of AUM payback. And what I mean by that is, let's say you have a hundred million dollar fund and you have a company that you've put ten million dollars in. And if you walk away, …”
Cubitt: Replacing a startup CEO rarely turns out well
“We can make a change at the CEO level on occasion. Not my favorite thing to do because I think it rarely turns out well, but there are things we can do to right the ship.”
Cubitt: Timing and market matter more than the CEO for startup success
“The most successful companies are highly correlated with timing, first of all. So are you in a bear market or a bull market? That's the number one correlation between success and failure in business. Number two correlating success factor is the market that you…”
Cubitt: Top CEOs anticipate changes 6 to 12 months ahead and pivot against consensus
“An A CEO is a, an executive who sees change coming, You know, six, nine, 12 months ahead of everybody else and has the ability to change course in, in the face of opposition from everybody else who is happy with the status quo.”
Cubitt: Immigrants make better entrepreneurs due to proven adaptability
“So people who have lived tougher lives tend to be a little bit more flexible. So that's why in general foreigners are better entrepreneurs in my opinion. And I, you know, I don't want to overstate it, but you know, they're willing to leave their country, their…”
Cubitt: AI Is Math, Not a Sector, and Useless Without Domain Collision
“AI is not a sector.
AI is math.
AI is an algorithm that's enabled by very fast processors with new ways of thinking about how to analyze big sets of data and now smaller and smaller sets.
But AI in and of itself is not that useful.
But AI combined with a subje…”