What is ‘Wash-Out Round’
A common round of financing to owners of small companies that are not yet financially stable. When such financing is done, the new issuance serves to dilute drastically the ownership of previous investors and owners. Often, the new investors are able to take control of the company because the previous owners are in desperate need of more financing to avoid bankruptcy.
Also know as “burn-out round” or “cram-down round”.
Explaining ‘Wash-Out Round’
The wash-out round is often the final financing opportunity available to entrepreneurs before a company is forced into bankruptcy. Wash-out rounds often occur when companies are unable to achieve performance levels that have been set in order to receive additional financing from investors.
Wash-outs occurred during the dotcom craze of the late 1990s when many companies were significantly overvalued.
Further Reading
- Discussion of 'limited attention, information disclosure, and financial reporting' – www.sciencedirect.com [PDF]
- The crisis from the point of view of evolutionary economics – www.emerald.com [PDF]
- The economic consequences of increased disclosure – www.jstor.org [PDF]
- Labour reallocation and productivity dynamics: financial causes, real consequences – papers.ssrn.com [PDF]
- The Modigliani-Miller propositions after thirty years – www.aeaweb.org [PDF]
- A life-cycle overlapping-generations model of the small open economy – academic.oup.com [PDF]
- Overconfidence, experience, and professionalism: An experimental study – www.sciencedirect.com [PDF]
- Globalization, harmonization, and competition: the different pathways to policy convergence – www.tandfonline.com [PDF]
