Wash-Out Round

  

Categories: Investing

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.

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in so to protect his shareholders the people who gave Manny the money to invest

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third of the company a million shares got it a buck each

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million shares...then time passes sure enough cars

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but Manny originally bought a third of the company for his million bucks for a

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million shares, Manny still owns that million shares he bought at a buck each

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of a total of six million shares outstanding or 1/6 of the company way

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company and of course none of this will matter if the flying car biz doesn't [Rose driving a flying car]

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take off or maybe takes off a little too quickly if you know if you catch our

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drift [Car floating into space]

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