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The Importance of High Gross Margin for Investors and VCs
High gross margin allows companies to have more funds for marketing, research & development, and operations, making them more attractive to investors. High gross margin companies tend to have higher enterprise value multiples and are more likely to trade at higher valuations when they go public. VCs are more interested in high gross margin businesses like software, marketplace, FinTech, and consumer businesses. Conversely, VCs may not be interested in capital-intensive or traditional businesses with low gross margins. However, traditional manufacturing businesses can attract VCs by adding a high-margin subscription revenue stream to their offerings.