Business Terms Glossary

Wash-Out Round

Definition of Wash-Out Round

A Wash-Out Round is an unpleasant financing round in which previous investors, founders, and management all suffer significant dilution.

Other names for this round are "burn-out rounds" or "cram-down rounds" but the bottomline is the same no matter what you call the round -- a new investor gains majority ownership and control of the company and everybody else walks away with a much smaller ownership position.

Entrepreneurs and early-stage investors should work very diligently to ensure that they are never washed out, if it can be avoided. This involves maximizing and growing the company valuation as well as bringing many prospective investors to the table when you need additional funding. One key thing to do to avoid being crammed down is to use cash sparingly. Companies that spend frivolously often find that they are out of money and much accept a wash-out round or close up shop.

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