Option impact analysis is the exercise of tracing how stock options—granted, reserved, or exercised—affect who owns what on a fully diluted basis.

How it works

Lawyers and CFOs build a cap table model with common stock, preferred stock, warrants, and the option pool. Option impact analysis adds scenarios: a 10% pool refresh before a Series A, new hire grants over 18 months, or full exercise at exit. Each scenario updates founder, investor, and employee ownership lines.

The analysis often separates “promised” options (granted but unvested) from “available” pool shares. It may also show waterfall outcomes—what common and option holders receive at different exit prices after preferred liquidation preferences. Investors request this during diligence to confirm the term sheet’s pool shuffle or refresh matches economic reality.

Scenario models often include a sensitivity table: pool refresh at 10% versus 15%, or partial exercise at exit. Founders should reconcile the model with the term sheet before signing—small differences in share counts compound at exit.

Why it matters

• Founders: You see whether a “small” pool increase costs you more than a headline valuation bump. Negotiating pool size pre-money versus post-money is easier when the impact is quantified.
• Investors: Confirms alignment on hiring plans and that option overhang will not swamp returns at moderate exit values.

Common mistake

Looking only at headline valuation and ignoring pool treatment. A higher pre-money with a larger pre-money pool expansion can leave founders with less ownership than a lower valuation with a smaller refresh.

Related ideas

See option pool, option pool refresh, option overhang, and ownership percentage.