Published on: September 10, 2025 at 11:15 am
By Nick Keppler
For new or wannabe investors, and even for seasoned investment professionals, the world of tech startups can be overwhelming. Due diligence on such companies can be bogged down by buzzwords and steeped in mentions of new technologies and concepts that are still emerging. It can be difficult to determine who has harnessed a trend from who is merely riding one—or pretending to do so.
Academy of Management Scholar Marc Gruber of the École Polytechnique Fédérale de Lausanne has studied startups for more than 25 years. He has a few rules of thumb to consider before investing in a startup. The first may look obvious yet is frequently neglected by founders: The business has to meet an actual market need—it should offer not just a “nice-to-have” or “should-have” but a “must-have” product for its customers.
“Is there really some offering that is seeing increased demand by customers?” Gruber added.
“If so, that’s a good signal, as there is a solid backbone for the business.”
Secondly, investors should also be able to understand the business’s competitive advantage, that is, how it could deliver something better than both established businesses and other startups in its field.
“Is there something about that startup’s offerings that makes it stand out, relative to the competition?” Gruber said. “Or is it just some kind of ‘me too?’
“Imitations can be successful if they’re very cheap or cost effective,” Gruber added, but a startup whose offerings are redundant can quickly be washed away in a fast-paced field—“and even those founders who believe they may have a competitive edge need to ask themselves if that advantage may erode due to advances in AI and faster R&D.”
Lastly, one should therefore look at the startup’s innovation pipeline. Gruber said that a worthwhile startup should employ a team of people who have proven themselves to adapt quickly and remain agile in the face of market volatility, especially in a startup environment where a company’s fortunes can change overnight.
