Option Pool

TL;DR

Equity reserved for future employee, advisor, and contractor grants, usually sized as 10 to 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 to 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 to 1% of the company per advisor, vesting over 1 to 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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