Matt Murphy argues that while high-growth AI companies often have lower gross margins (20-30%) due to inference costs, they can credibly reach 60-70% by optimizing their cost structure and building proprietary models on top of frontier labs. He cites Lovable as a company with a credible margin path. ✦ AI generated
Matt Murphy · 20VC · 2026-07-27 · original ↗
starts at this moment · 21:02
“do margins matter anymore?”
They do a lot and and you know what we're we're in this kind of like tricky period as investors where right now a lot of great companies have uh low margins and you know let's say like 20 to 30% margins and you know they've all they they all probably have a path to get to 60 or 70. Well, you know, a lot of companies just because the cost of comput and inference, it's harder to say you're going to be an 80 90% gross margin company anymore. But, you know, uh great companies are, you know, 60 70% gross margin. But, you know, the path to get there is like, hey, I'm going to do some optimizations. uh you know I don't I'm not completely tied to you know uh to to to inference around you know my cost structure and I'm probably going to do something complimentary to the to the leading labs with my own data and build a model that kind of gets my gross margin up.
verbatim transcript · starts at 21:02
20:42know you could do whatever model you wanted and you're like look if this thing keeps compounding and this is really the company that we believe this will be one of the most valuable companies of all time. So, you know, >> mar dem do margins matter anymore? >> They do a lot and and you know what we're we're in this kind of like tricky period as investors where right now a
21:02lot of great companies have uh low margins and you know let's say like 20 to 30% margins and you know they've all they they all probably have a path to get to 60 or 70. Well, you know, a lot of companies just because the cost of comput and inference, it's harder to say you're going to be an 80 90% gross margin company anymore. But, you know, uh great companies are, you know, 60 70%
21:24gross margin. But, you know, the path to get there is like, hey, I'm going to do some optimizations. uh you know I don't I'm not completely tied to you know uh to to to inference around you know my cost structure and I'm probably going to do something complimentary to the to the leading labs with my own data and build a model that kind of gets my gross
21:44margin up. You're intercepting a lot of these hyperrowth companies with margins that are atypical for what we usually invest in and you're trying to figure out which ones actually have a credible plan to get to a great margin structure. And for what it's worth, I think Lovable is one of those. >> The margin structure of Lovable will be changed greatly with the utilization of open source, which is obviously much
22:05cheaper. Um, that goes against one of the other investments being anthropic. Do do you see them as like hedges against each other? Do you worry about the progression of open source given how much can be done now with open source? I'm intrigued how you think about that. >> Yeah, I mean first of all I think like uh Anthropic is a fantastic partner to lovable and vice versa. Um but like this