Option Pool

A reserved slice of equity set aside for future employee grants, typically 10-20% of the company. Created before fundraising, the dilution usually comes from founders, not investors.

Why it matters

The option pool is how you attract and retain talent with equity. Size it wrong and you either can't hire the people you need or you give away too much of the company. Understanding how it's created and who bears the dilution is essential for fundraising negotiations.

How it works

A typical option pool is 10-20% of fully diluted shares, created at or before a funding round. Investors usually require the pool to be created pre-money, meaning the dilution comes from existing shareholders (founders), not from the new investment. Unallocated shares in the pool count toward the fully diluted share count even though nobody holds them yet. As you make grants, the unallocated portion shrinks and may need to be refreshed at the next round. For example, if you create a 15% pool and grant 10% to employees, you have 5% remaining for future hires.

Learn more

• Employee Equity Benchmarks
• What Is a Cap Table

Related terms

• Stock Options
• Cap Table
• Dilution
• Strike Price
• 409A Valuation