Option pool

What is option pool?

An option pool is a block of shares a company reserves to grant as equity to employees, advisors, and future hires. It's carved out of the cap table as a percentage of ownership and dilutes existing shareholders. Investors often require expanding it before a round, so the pool is sized to cover hiring until the next raise.

Worked example

Why it matters for fast-growing companies

Where the option pool comes from is a quietly expensive negotiation. Investors typically insist the pool be created or expanded pre-money, meaning founders absorb the dilution while the new investors don't. Understanding the 'option pool shuffle' lets you push back and negotiate pool size against your actual hiring plan.

Related terms

• Fundraising & equityDilutionDilution is the reduction in your ownership percentage when a company issues new shares, typically in a funding round or when expanding the option pool.
• Fundraising & equityVesting scheduleA vesting schedule is the timeline over which someone earns their equity, rather than owning it all at once.
• Fundraising & equityCapitalization table (cap table)A capitalization table (cap table) is a record of who owns what in a company, every share, option, warrant, and convertible security, listed by holder and class.
• Fundraising & equityPre-money vs post-money valuationPre-money is a startup's valuation before new investment; post-money is that value plus the new cash raised.

Frequently asked questions