The option pool is the block of shares you reserve for future employees, advisors and directors. Its size looks like a detail on a term sheet, but it moves real ownership between you and your investors.
This guide shows how to size a pool from a hiring plan and how pool placement changes your effective valuation.
Size the pool from your hiring plan, not a benchmark
A pool that is too small forces an awkward mid-cycle increase. A pool that is too large dilutes you for grants you never make.
Many seed and Series A companies end up with a pool between 10% and 20% of fully diluted shares. Use that range as a sense check, not as the answer.
Build the number in four steps
- List the hires you plan to make before your next financing, usually 12 to 24 months.
- Assign a grant size to each role, as a percentage of fully diluted shares. Use offers you have already made and current market data.
- Add refresh grants for existing employees who are more than halfway through vesting.
- Add a buffer for unplanned hires and advisors.
Here is an illustrative plan for a company with 10,000,000 fully diluted shares. The grant sizes are examples, not recommendations.
| Hire | Count | Grant each | Total |
|---|---|---|---|
| Senior engineers | 4 | 0.50% | 2.00% |
| Engineers | 4 | 0.25% | 1.00% |
| Head of sales | 1 | 1.00% | 1.00% |
| Account executives | 3 | 0.15% | 0.45% |
| Designer | 1 | 0.30% | 0.30% |
| Refreshes | 1.00% | ||
| Plan subtotal | 5.75% | ||
| Buffer (25%) | 1.44% | ||
| Pool needed | 7.19% |
If the term sheet asks for a 12% pool, this plan is your case for a smaller one.
Where the pool sits changes who pays for it
Investors usually want the pool counted in the pre-money valuation. That detail decides whether founders alone or everyone absorbs the dilution.
Example A: pool created in the pre-money
A company has 8,000,000 founder shares and no pool. It raises $4,000,000 at a $16,000,000 pre-money valuation, for $20,000,000 post-money. The investor requires a 10% post-money pool, created before the round.
- Investor ownership: $4M ÷ $20M = 20%.
- Pool: 10%.
- Founders: 100% − 20% − 10% = 70%.
- Total post-money shares: 8,000,000 ÷ 0.70 = 11,428,571.
- Price per share: $4,000,000 ÷ 2,285,714 investor shares = $1.75.
The founders' 8,000,000 shares are worth 8,000,000 × $1.75 = $14,000,000. The headline pre-money was $16,000,000.
Example B: pool created after the round
Same company and terms, but the pool is added after closing, so the investor shares the dilution.
- Price per share: $16,000,000 ÷ 8,000,000 = $2.00.
- Investor shares: $4,000,000 ÷ $2.00 = 2,000,000.
- Pool at 10% of the new total: 10,000,000 ÷ 0.90 = 11,111,111 total, so the pool is 1,111,111.
- Founders: 8,000,000 ÷ 11,111,111 = 72.0%. Investor: 18.0%.
The founders keep two more percentage points in Example B.
Negotiate the pool with evidence
- Bring the hiring plan. A line-by-line plan is the strongest argument for a smaller pool.
- Count existing unallocated shares. Returned and never-granted options already in the pool reduce the top-up needed.
- Ask for a smaller pre-money top-up with room to increase the pool later by board and stockholder approval.
- Model both placements before you sign, so you negotiate on effective valuation, not the headline.
Keep the pool honest after the round
A pool is only useful if you know what is left. Track three numbers every month:
- Granted and outstanding options and RSUs.
- Exercised shares, which leave the pool permanently.
- Available shares, including cancellations returned to the pool.
Capable models the pool before you sign and tracks it after
Capable's round modeler shows dilution by holder with the pool in the pre-money or post-money, including SAFE and note conversions. Change the target pool and the price per share updates.
After the round, the equity plan view shows outstanding, exercised and available shares, with cancellations returned automatically.
Related reading: SAFE vs convertible note, ISO vs NSO, and what a cap table is.