Option Pool
Shares reserved for future employee equity grants, typically created or expanded as part of a financing round.
An option pool is a block of company shares set aside specifically for equity compensation to employees, advisors, and sometimes new hires, rather than issued directly to founders or investors. Investors typically require the pool to be sized (commonly 10-20% of fully diluted shares) and created before the new money comes in.
Because the pool is almost always carved out of the pre-money valuation, expanding it dilutes existing shareholders — mostly founders — before the new investors' money is even counted, which is why the 'option pool shuffle' is one of the most common places founders lose ownership percentage without realizing it in negotiation.
Pool sizing should be based on an actual hiring plan through the next round, not a round number pulled from a template — an oversized pool dilutes founders for no benefit, while an undersized one forces an awkward mid-cycle top-up that dilutes everyone again.
A company negotiates an $8M pre-money valuation and investors require a new 15% option pool created pre-money. The effective valuation founders are diluted against is really $8M including that pool, not $8M plus a separate pool — shrinking founders' real ownership more than the headline number suggests.
Negotiate the option pool size based on your actual 18-24 month hiring plan, and push to have it counted post-money (or split the dilution) rather than accepting a large pre-money pool without question — it's genuine, quantifiable dilution.
Who pays for the option pool expansion in a financing?
Existing shareholders, primarily founders, since the pool is typically carved out of the pre-money valuation before new investor money is counted — it's a real, often underappreciated source of founder dilution.
Related terms
Run the numbers yourself: dilution, SAFE conversion, and fund-returner calculators.