An evergreen option pool is a company equity reserve maintained at a target size—typically a fixed percentage of fully diluted shares—that replenishes as prior grants vest, expire, or are canceled.

How it works

At formation or a financing round, the board approves an equity incentive plan with an evergreen clause. If the plan targets, say, 15% of fully diluted stock for employees, exercised options convert to common shares and leave the pool; forfeited unvested grants return to the pool. The plan language automatically increases authorized pool shares so the available grant capacity stays near the target without a new investor negotiation each year.

Contrast this with a fixed pool created only at Series A: once grants exhaust the block, the company needs a cap table increase and often investor consent. Evergreen pools reduce administrative friction but shift dilution timing—refresh happens in the background rather than at discrete financing events.

Why it matters

• Founders: Easier to offer competitive packages to late hires without delaying board cycles; still monitor total dilution against your ownership goals.
• Investors: Check whether evergreen refresh dilutes only on net new grants or also re-ups the pool when valuations rise; negotiate caps if the percentage feels aggressive.

Common mistake

Assuming evergreen means unlimited dilution. The pool still has plan limits, board oversight, and investor protective provisions—refresh is automatic only within those boundaries.

Related ideas

See equity incentive plan, cap table, option pool shuffle, and 409A valuation.