The Value-State Test for Crossing the Chasm
VC money buys a change in your company's value state — you have crossed when you no longer need the next round.
- Difficulty
- Moderate
- Time to result
- ~months to results
- Steps
- 4
- Confidence
- 90%
Moore reframes what a funding round actually purchases: not runway, not hires, but a change in the value state of the company such that the next investor prices you 2-3x higher. Crossing the chasm is the specific value-state change from 'cool possibility' to 'going concern.' The observable done-check is not revenue but cash-flow independence: you can raise on your nickel and your timeline, not because you are running out of money.
Origin
Geoffrey Moore, connecting the crossing-the-chasm milestone to venture financing mechanics; he frames each investor class by the risk their money removes.
Core principles
- 01A round is a purchase of value-state change. Brilliant demos and great hires that do not change the value state mean the next round reprices you flat or down.
- 02Investor classes map to risks removed: angel money removes 'can they build anything'; chasm money removes 'will they go out of business'; bowling-alley money buys the $10M→$100M journey.
- 03A going concern = a company you would expect to still exist in two years, because it has a loyal customer base, a partner ecosystem bringing it deals, and a known CAC and LTV.
- 04The metric that matters is cash-flow positive, not GAAP profit. You want to keep doing what you are doing without a gun to your head.
- 05Moore's rule of thumb: a single round should be enough to cross the chasm and dominate one use case in one market in 18-24 months, because the campaign is cheap and you are not discounting.
How to run it
- 1
Restate your current round as a value-state target
Write down what value-state change this money is buying: what risk will be off the table when it runs out, such that the next investor prices you 2-3x up? If the answer is 'we'll have built more product', you are not funding a state change.
Pro tip Ask which investor class you are trying to become fundable BY next, and what risk that class removes.
Watch out Companies that assume 'there'll be another round and another round' are the ones that died in the 2023 funding contraction.
- 2
Target the going-concern state, not the growth state
The chasm-crossing value state is existence viability: a loyal customer base in one segment, a partner ecosystem that brings you into new deals, and an operating model with established CAC and LTV. Not the biggest company in the world — a $10-20M real company.
Pro tip That is what the chasm-stage investor is actually buying: 'I'm going to take you going out of business off the table.'
- 3
Budget the crossing as cheap and undiscounted
One geography, one industry, one profession means a marketing campaign aimed at maybe 200 people. No Super Bowl ads. And because the problem is compelling, you use value pricing — the customer does not want a discount, they want the problem gone.
Pro tip Nobody wants a coupon for heart surgery. Solve the problem completely and charge for it.
Watch out Discounting pre-chasm signals reduced support or scope, raising the buyer's perceived risk in a risk-bearing decision.
- 4
Check the done condition: cash-flow positive
You know you have crossed the chasm when you can say: I do not have to raise any more venture capital. You may still WANT to, for global ambitions — but you get to raise on your valuation and your timeline rather than out of desperation.
Pro tip Care about cash flow, not GAAP accounting. You could cut back to profitability if needed; the point is optionality.
Watch out Revenue milestones (e.g. '$1M ARR') are the wrong reference point. The right one is a marquee visionary account plus a repeatable segment win.
In the wild
A team spends a round doing brilliant things — amazing demos, great hires — but never changes the value state of the company. When they return to market, the next investor cannot justify a step-up, so they raise at the old valuation or take a down round, and the earlier investor loses.
→ Moore notes this pattern was fatal to a huge number of companies in the year before this recording, because they had never thought about funding as buying a value-state change.
Once you are cash-flow positive with a loyal segment and a partner ecosystem, the next raise is a bowling-alley round: the investor is buying a $10M→$100M journey and a growth rate, and the rule of 40 starts to apply.
→ You raise from strength at a repriced valuation instead of raising because you are running out of money.
Common mistakes
Treating the round as runway rather than a state change
If the money buys activity rather than a removed risk, the next round is flat or down — regardless of how good the work was.
Assuming you need venture capital at all
Moore's position: the only two valid reasons to raise are that the technology is too expensive to self-fund (GPUs, training large models) or the category will catch fire faster than you can self-finance. Wanting to do a startup is not a reason.
Hiring an enterprise salesperson to cross the chasm
Enterprise reps are trained on horizontal coverage models. Chasm crossing is a narrow, domain-expert, diagnostic motion — you want someone who looks more like a sales engineer, committed to the integrity of the problem-solution framework.
Is it for you?
Best for
Venture-backed B2B founders deciding what this round must prove, and how to know when the crossing is complete
Not ideal for
Bootstrapped consumer or PLG businesses where financing mechanics and federated risk-bearing purchases do not apply
From the transcript
“a venture capitalist gives you money and what they're buying from you with this money is I want you to use this money to change…”
“a going concern is a company that two years from now you would expect still to be in existence”
“you know you've crossed the chasm when you say I don't have to raise any more Venture Capital”
“one of the mistakes you could make is hiring an Enterprise salesperson when you're trying to cross the chasm”
“you want somebody that looks more like a sales engineer than a salesperson”
From the episode
Geoffrey Moore on finding your beachhead, crossing the chasm, and dominating a market