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Non-Tech : Auric Goldfinger's Short List
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To: Nevada who wrote (3051)9/4/1999 5:10:00 PM
From: Smilodon  Read Replies (3) of 19428
 
Washout is a common venture capital term.

When a private company has failed in its original business, but is either trying again, or more likely trying a different angle, they will have a "washout" round of finacing. They essentially sell shares to new venture investors at a massively lower price than earlier rounds, such that previous investors have their stakes diluted to almost nothing. Of course, management will have to be given new shares as well to keep them in the company.

Normally, venture investors have a clause in their funding terms that allows them to participate in any future rounds to protect their ownership. So, in a "washout" round, previous investors who wanted to continue investing would add money along with the new investors, and if they didn't want to continue and invest additional capital, their original equity in the company would be diluted away. Thus, they would be "washed out."
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