Gross Margin Targets VCs Demand by 2025

Discover the gross margin targets VCs expect by 2025 and how to meet them.
June 20, 2025
testauthor

Understanding Gross Margin Targets for 2025

As the business landscape evolves, venture capitalists (VCs) are setting clear expectations for gross margins by 2025. This article delves into the findings from an analysis of 100 recent UK and EU pitch decks, highlighting the average gross margin targets at different funding stages: seed (60%), Series A (70%), and Series B (75%). Understanding these benchmarks is crucial for startup founders aiming to secure investment and scale their businesses.

Why VCs Focus on Gross Margins

Despite the prevailing 'growth-at-all-costs' narrative, VCs are increasingly prioritising expansion-phase margins. This shift is driven by the need for sustainable business models that can withstand market fluctuations. Interviews with two VC partners reveal that heavy reliance on services revenue is a red flag, prompting deeper due diligence. VCs seek businesses with scalable models that can maintain healthy margins while growing.

Repositioning Costs for Transparency

To meet VC expectations, founders must present transparent financials. A practical approach involves repositioning costs as either operational expenses (opex) or cost of goods sold (COGS). This distinction provides clarity and aligns with investor priorities. A helpful table in this article demonstrates how to categorise expenses effectively, ensuring transparency and building investor confidence.

Aligning Margins with Market Potential

Successful storytelling of gross margins involves aligning them with the total addressable market (TAM), pricing power, and scalability. Founders should articulate how their business model can achieve and sustain the targeted margins while capturing a significant market share. This narrative not only attracts VCs but also positions the startup for long-term success.

Common Pitfalls and How to Avoid Them

  • Relying heavily on services revenue, which can hinder scalability.
  • Lack of clear cost categorisation, leading to investor scepticism.
  • Failure to demonstrate market potential and pricing strategy.

Understanding and addressing these pitfalls is crucial for aligning with VC expectations.

Next Steps for Founders

Founders should conduct a thorough review of their financial strategies and ensure their pitch decks reflect the desired gross margin targets. Engaging with financial advisors and leveraging analytical tools can provide valuable insights into achieving these benchmarks. For further guidance, consider exploring resources like the SeedLegals platform, which offers comprehensive support for startups.

In conclusion, meeting gross margin targets requires a strategic approach that balances growth with financial sustainability. By aligning with VC expectations and avoiding common pitfalls, startups can secure the investment needed to thrive. For detailed guidance, explore our resources or contact us for personalised advice.

Ready to optimise your margins and attract investment? Contact us today to start your journey.

Discover the latest blogs

Stay informed with the latest health and wellness insights from our experts.

Improving Business Profit Margins

Improving profit margins is one of the most effective ways to increase business profitability and ensure long-term success. Profit margins measure how much of each dollar of revenue your business keeps as profit, so even small improvements can significantly boost your bottom line. In this guide, we’ll explore how to improve profit margins through a mix of revenue enhancement and cost reduction strategies. These profit margin strategies are drawn from real-world business experience and will help you optimize both your gross and net margins.

Understanding Gross Margin

Gross margin is one of the most fundamental indicators of a company’s financial health. Understanding gross margin can help you price products correctly, manage costs, and gauge your business’s efficiency in delivering goods or services. In simple terms, gross margin tells you how much of your revenue remains after covering the cost of goods sold – it measures the core profitability of your product or service before other expenses. In this article, we’ll break down what gross margin is, how to calculate it, why it’s important, and how it differs from net margin. We’ll also look at gross margin in financial statements, discuss typical gross margin benchmarks across industries, and examine how gross margin contributes to competitive advantage. By the end, you’ll have a solid grasp of gross margin and how to use it to make better business decisions.

Business Financial Metrics

In today’s data-driven world, business financial metrics are essential tools for measuring performance and guiding decision-making. For startup and B2B company founders, understanding financial metrics is crucial for assessing the health of your business and communicating its progress to stakeholders. The challenge is knowing which metrics matter most – especially when you’re busy and wearing multiple hats. This comprehensive guide breaks down the key financial metrics for businesses that you should be tracking. We’ll cover profitability ratios, liquidity measures, efficiency indicators, and growth metrics (including those especially relevant to startups like CAC and burn rate). By measuring business performance through these metrics, you can make informed decisions, identify issues early, and steer your company toward success. Let’s dive into the essential financial KPIs and how to use them effectively.
See More
See More
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
SERVICES
Marketing & Growth
Operations & Efficiency
Financial Strategy
Contact Us
Gross Margin
AIM Internet Ltd
Crossways
156 Great Charles Street
Birmingham, B3 3HN
© 2025 AimDigital. All right Reserved | Powered by Anjin