Wash-Out Round

A wash-out round (also known as burn-out round or cram-down deal) is when a round of new financing usurps control of previous equity holders. When such financing is done, the new issuance drastically dilutes the ownership stake of previous investors and owners. New investors are thus able to take control of the company because the previous owners are in desperate need of more financing to avoid bankruptcy. Wash-out rounds are most often associated with smaller companies or with startup ventures that lack financial stability or a strong management team.