washout round

Definition

A financing so dilutive that existing shareholders are essentially wiped out, often following multiple bridge rounds and broken promises. The financial equivalent of starting over but with more emotional baggage.

Example Usage

The washout round reduced founder ownership from 40% to 3%, but hey, at least the company survived to disappoint us another day.

Origin

Venture capital terminology from the dot-com crash era (2000-2002)

Fun Fact

Washout rounds typically involve new investors demanding control and existing investors pretending they saw this coming.

Source: Venture capital restructuring terminology

Related Terms

Advanced

option pool shuffle

The practice where investors force a startup to create or expand the employee option pool before a funding round, effectively diluting founders rather than new investors. It's a clever way to pay employees with founder equity.

🚀 Startup / VC

Intermediate

Vaporware

A product that has been announced and marketed but doesn't actually exist yet, which in Silicon Valley is just called a pre-launch strategy. It's the tech equivalent of selling tickets to a concert before you've learned to play an instrument.

🚀 Startup / VC

Intermediate

conversion rights

The privilege granted to preferred shareholders to convert their fancy preferred stock into common stock, typically exercised when they want to sell or when common stock becomes more valuable (rare but delightful). It's a one-way ticket that investors usually only take when they're confident they're not leaving money on the table.

🚀 Startup / VC

Advanced

qualified small business stock

IRS tax designation (Section 1202) that can exclude up to $10 million in gains from federal taxes for early startup investors, assuming you navigate the Byzantine requirements. The tax break that makes angel investing slightly less insane.

🚀 Startup / VC

Intermediate

revenue multiple

A valuation metric calculated by dividing company valuation by annual revenue, popular in tech because it works even when profits are mythical. Allows investors to justify astronomical valuations by citing "industry standards."

🚀 Startup / VC

Intermediate

trademark velocity

The speed at which a startup moves from inception to market dominance within its category. The term is sometimes used when discussing execution speed and competitive moats simultaneously.

🚀 Startup / VC

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