Definition of '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".
Investopedia explains '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.