Understanding the Triple Chasm Model: Funding & Due Diligence at Each Stage and What Makes it Different

The journey from innovation to a scalable, successful product is fraught with challenges, and the Triple Chasm Model offers a structured way to understand and address these obstacles.

The Triple Chasm Model is a framework designed to help organizations navigate the challenges of scaling and commercializing new technologies or innovations. It builds upon Geoffrey Moore’s “Crossing the Chasm” concept but introduces three distinct stages (or chasms) that companies need to overcome to successfully scale their innovations.

Each stage in the model—technology to product, product to market, and market to scale—requires specific strategies to cross. Not only do these stages present technical, operational, and market challenges, but they also require different approaches to due diligence, the process by which investors and companies assess risk, viability, and scalability. In this post, we’ll explore the key differences in due diligence at each chasm, highlighting what makes it unique at each phase.

First Chasm: From Technology to Product

At the first chasm, the main challenge is transitioning from raw technology to a viable product. For companies, this stage is focused on productizing their innovation, which means turning it into something that can be commercially viable. This is where many innovative ideas falter, often because they remain too technical and fail to address real-world problems or because they haven’t been thoroughly tested in practical environments.

Fund Series: Pre-Seed and Seed

At this stage, the company is focused on transitioning raw technology into a viable product, and the primary risk is technical feasibility. Investors at the Pre-Seed and Seed stages are typically funding companies that have innovative ideas but need capital to develop prototypes and validate the technical aspects of their solution.

• Pre-Seed funding is usually used to develop a proof of concept or prototype. The focus here is on proving that the technology can work in practice and that the founding team has the technical expertise to take the concept further.
• Seed funding follows once the prototype is more established. The product is not yet market-ready, but Seed investors provide capital to further productize the technology, refine its features, and begin early market testing. At this point, some basic customer discovery and problem-solution fit validation are expected, but the emphasis remains on product development and technical challenges.

Due Diligence Focus

In this stage, due diligence is heavily technology-centric. The questions investors and teams ask revolve around the technical feasibility of the innovation. The startup’s readiness for such due diligence relates to these aspects:

• Proof of Concept: Does the technology work in a controlled environment? Has it been tested sufficiently to ensure functionality?
• Intellectual Property (IP): Does the company have strong IP protections, including patents or proprietary technology, that would safeguard its competitive advantage?
• Prototype Evaluation: How developed is the prototype? Is it close to becoming a product, or is there a significant development gap?
• Team Expertise: Does the founding or development team have the technical expertise needed to bring the technology to market?

In the first chasm, due diligence is predominantly focused on technical risk—whether the product can work as intended in real-world scenarios—and the IP or legal landscape that surrounds the innovation. Investors look for solid prototypes, clear technical differentiation, and protection against competition.

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Second Chasm: From Product to Market

Once the technology has been turned into a product, the second chasm involves identifying and penetrating the market. This stage focuses on product-market fit, the process of finding the right customer base and demonstrating that the product solves a specific problem. Crossing this chasm requires companies to move from niche early adopters to a broader market, often encountering roadblocks in pricing strategies, customer acquisition, and market alignment.

Fund Series: Series A

The second chasm represents the transition from having a fully developed product to finding the right market fit. Here, the focus shifts from pure technical innovation to commercial viability. The company needs to identify its ideal customers, refine its value proposition, and begin demonstrating real traction in the market.

• Series A funding is designed for companies that have a working product and are starting to enter the market but need additional capital to refine their go-to-market strategy and begin scaling their customer acquisition. Series A investors expect the company to show some early market traction, even if it’s minimal, and want evidence that there is potential for growth.

Due Diligence Focus

In this stage, the focus of due diligence shifts from the technology itself to market viability. Key questions include:

• Market Fit: Has the product been tested with real customers? Are there paying customers who provide validation that this product solves a problem?
• Customer Acquisition Strategy: What is the company’s go-to-market strategy? How effectively can it acquire and retain customers in a scalable way?
• Competitor Analysis: Are there competitors in this space? If so, what differentiates this product from others, and is the market already saturated?
• Revenue and Sales Models: What are the company’s current revenue streams? How will they grow, and what is the timeline for profitability?

Due diligence in the second chasm is more commercially oriented. Investors are now less concerned about whether the technology works and more about whether there is a market that wants the product and is willing to pay for it. They assess customer traction, market size, and revenue potential.

DON’T

Don’t overlook the technology related aspects of your product in the 2nd chasm due-diligence, most investors specially newly introduced will still need to run full due-diligence on the technology.

Third Chasm: From Market to Scale

The final chasm in the model is about scaling the business. Once a product has successfully entered the market and found product-market fit, the challenge shifts to expansion. This involves not only scaling sales and distribution but also ensuring operational processes can handle increased demand. Companies need to build robust systems for manufacturing, logistics, and customer support while managing costs and optimizing efficiency.

Fund Series: Series B and C

The third chasm occurs when the company has found product-market fit and needs to scale its operations to support larger customer bases and higher demand. The primary challenges at this stage are scaling the business efficiently, managing operations, and optimizing growth.

• Series B funding is aimed at helping companies scale operations, expand into new markets, and optimize sales and marketing efforts. At this stage, the business model is proven, and the focus is on increasing market reach and building infrastructure to support rapid growth.
• Series C and beyond focus on hyper-growth. Companies at this stage are often expanding globally, adding new products, or acquiring competitors to capture additional market share. Series C funding is used to push the company to a dominant position in the market and ensure long-term sustainability at scale.

Due Diligence Focus

At this stage, due diligence becomes centered on scalability and operational effectiveness. Investors and internal teams ask:

• Scalability of Operations: Does the company have the operational capacity to scale? Can production be ramped up, or will supply chain limitations hinder growth?
• Financial Health: Is the company financially stable, and does it have enough runway to grow? Are there sound financial projections, and do they account for scaling costs?
• Sales and Marketing Efficiency: How cost-effective are the company’s sales and marketing efforts? What is the customer acquisition cost (CAC) relative to lifetime value (LTV)?
• Management Team: Is the management team experienced in handling large-scale operations? Does it have the strategic vision and operational expertise needed for this phase?

In this final stage, due diligence is centered on the company’s ability to scale rapidly and efficiently without sacrificing quality or customer satisfaction. Investors look for evidence that the company has the infrastructure, systems, and financial health to support large-scale growth.

What Makes Due Diligence Different in Each Stage?

DO

Prepare your team with the right technical and commercial expertise at each chasm. Building a strong, flexible, balanced team is key to overcoming each stage’s unique challenges.

The key difference in due diligence across these three chasms lies in the focus of risk assessment. In the first chasm, the focus is on technical risk—whether the technology works and is protectable. In the second chasm, the emphasis shifts to market risk—whether there is a demand for the product and whether the company can capture market share. By the time the company reaches the third chasm, scaling risk is the primary concern—whether the company can grow sustainably and handle increased demand while maintaining operational effectiveness.

Understanding these differences in due diligence allows companies to better prepare for the various challenges they will face as they move from innovation to market success. It also helps investors and stakeholders assess risks more accurately at each stage, ensuring the right support and investment are in place to cross each chasm effectively.