How big should the option pool be?

Seed stage: 10-15% of post-round shares. Series A: 15-20%. Size it based on your hiring plan through the next round. Creating a detailed grant schedule for planned hires helps negotiate the right size. An oversized pool dilutes founders unnecessarily, while an undersized pool may require a top-up before the next round.

Why do investors want the option pool expanded before their round?

Because the option pool expansion dilutes existing shareholders (founders), not the new investors. By expanding the pool pre-round, investors get a larger effective ownership for their investment. This is sometimes called the "option pool shuffle" and effectively lowers the real pre-money valuation for founders.

Pitchkit

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GLOSSARY

Option pool

An option pool is a block of company shares reserved for future equity compensation grants to employees, advisors, and consultants. Investors typically require the option pool to be expanded before a priced round, with the dilution from expansion absorbed by existing shareholders (primarily founders). The pool size is negotiated as part of the term sheet and should be sized to cover planned hires until the next funding round.

Why it matters

Attracts talent with equity compensation. Investors often require expanding the pool pre-round, diluting founders.

Benchmarks

Seed: 10-15% post-round; Series A: 15-20%. Depends on hiring plan and existing grants.

Worked example

Pre-round pool 8%. Investor requires 15% post-round. Founders absorb the 7% expansion before investment.

Common pitfalls

Not negotiating pool size; underestimating hiring needs; not understanding pool expansion dilutes existing shareholders.

Frequently asked questions

Related terms

Cap table Vesting

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