A Washout Round is an extreme down-round financing structured in a way that heavily dilutes (or effectively wipes out) prior common and sometimes earlier preferred holders, often through punitive pricing and reallocation of equity to new money and continuing insiders. In distressed venture situations, a Washout Round may be paired with pay-to-play provisions and recapitalization mechanics, and a Washout Round can create significant legal, fiduciary, and morale issues.
