Investing in scale-ups? Execution matters more than product-market fit

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Gross margins are one of the most important financial metrics in any start up. But figuring out what does and doesn't go into margins is not as simple as it may sound. A sixten z general partners martin casado, who invests in early stage enterprise start ups, and david george, who leads our growth fund, share why margins matter from their vantage points. They also briefly touch on how margins can impact valuations.

Gross margins–which are essentially a company’s revenue from products and services minus the costs to deliver those products and services to customers–are one of the most important financial metrics for any startup and growing business. And yet, figuring out what goes into the “cost” for delivering products and services is not as simple as it may sound, particularly for high-growth software businesses that might use emerging business models or be leveraging new technology.

In this episode from June 2020, a16z general partners Martin Casado, David George, and Sarah Wang talk all things gross margins, from early to late stage. Why do gross margins matter? When do they matter during a company’s growth? And how do you use them to plan for the future? The conversation ranges from the nuances of and strategy for calculating margins with things like cloud costs, freemium users, or implementation costs, to the impact margins can have on valuations.