Wash-Out Round

You found a business. You grow it from a tiny startup to the brink of greatness. But you need money to expand.

You get a few angel investors. They take a stake, but its still just you and a handful of people with ownership in the company...basically, everyone with shares in the company could still share an elevator ride together.

Things go well, and it's time to really blow it out. Bring in lots of cash from lots of investors. Your ownership (and the ownership of your original investors) is about to drop substantially as you issue shares to everyone else.

A massive dilution in your shareholdings is about to happen. That's the wash-out round of financing...the point where the previous investors get their shareholdings hosed with big-time dilution. Their shares get washed out by the deluge of new stock issuance.

Don't feel too badly though...those original investors usually get a bunch of cash as compensation.

See: Angel Investors.