Option Pool

TL;DR

Equity reserved for future employee, advisor, and contractor grants, usually sized as 10–20% of fully diluted shares.

The option pool is shares reserved for future hires. Pool size is negotiated as part of every priced round: investors typically require the pool to be sized so the company won't need to top up before the next round. The standard ask is 10–20% of fully diluted shares post-financing, with seed and Series A usually at the higher end.

The pool top-up is added to the pre-money side of the equation, which means the founders dilute themselves to fund the pool — even though the new investors benefit from the future hires the pool will fund. This is the 'option pool shuffle'.

Formula

Pre-Money Pool % = Pool Size ÷ (Pre-Money Fully-Diluted Shares + New Pool Shares − Existing Pool Shares)

• Pool Size — Target pool % (e.g. 10%) on a post-close basis
• Pre-Money Fully-Diluted Shares — Fully-diluted shares before the new round and any pool refresh

If the pool refresh is taken pre-money (the 'option pool shuffle'), founders bear 100% of the dilution from the new pool.

Worked example

10M shares pre-money, lead asks for a 10% post-close pool. New pool shares ≈ 1.43M (so pool is 10% of post). Founders dilute by 1.43M / (10M + 1.43M) = 12.5% just from the pool — entirely pre-money, before any cash investment.

Common pitfalls

• Sizing the pool too small and needing a dilutive top-up before the next round.
• Sizing the pool too large at investor request and overdiluting unnecessarily.
• Granting pool shares without a structured grant policy.

When this shows up in a pitch deck

Pool size and grant philosophy surface in the Team or Hiring Plan slide implicitly.

Related terms

• Option Pool Shuffle — The negotiation tactic where investors require the option pool to be expanded pre-money, diluting only the founders rather than the new investors.
• Dilution — The reduction in an existing shareholder's ownership percentage caused by issuing new shares in a financing or an option grant.
• ESOP — Employee Stock Option Plan — the legal structure that lets a company grant options to employees at a defined strike price, governed by board approval and 409A.
• Advisor Shares — Equity granted to formal advisors, typically 0.1–1% of the company per advisor, vesting over 1–4 years for ongoing involvement.
• Vesting — The schedule by which equity grants are earned over time, typically 4 years with a 1-year cliff for founders, employees, and advisors.

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