More And More Washout Rounds Happening

from the sucks-to-be-an-original-investor dept

A good article about how so-called washout investment rounds are becoming more common at many technology companies. The way a washout works is that the original investments of any venture capitalists are basically nullified and “washed out” and a new investment at a much lower valuation takes place instead. It’s the ultimate down round. The example they give is of Caspian Networks who raised money at a valuation of $500 million in 2000, and are now looking to raise money at a pre-money valuation of $5 million. All of those investors who dumped in millions for their shares at a valuation of $500 million will end up with basically nothing for their investment. Of course, “basically nothing” may be just slightly better than the “absolutely nothing” they would receive if the company shut down.

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