Wash Out Round

Wash Out Round Meaning:
In venture capital terminology, the term Wash-Out Round refers to a financing round whereby the original owners, founders and officers of a company suffer drastic dilution in their ownership interest in the company.

For example, if a company has not reached the performance levels specified by their creditors to qualify to receive additional financing, the creditors will then issue a Wash-Out Round of financing. This effectively takes a large equity stake from the previous owners, and this type of financing typically represents a last resort before a company is forced into bankruptcy. Often, the providers of the Wash-Out Round of financing are able to take control of the company in exchange for the financing. The Wash-Out Round is also known as the �burn-out round� and the �cram-down round.� Wash-Out Round financing occurs mainly in companies which are significantly over-valued.