An option pool is the slice of company ownership reserved for employee and advisor equity grants, held outside founders’ and investors’ direct holdings until options or RSUs are issued.

How it works

The board approves an equity incentive plan and allocates shares—often expressed as a percent of fully diluted capitalization. Early startups might start with a 10–15% pool; later stages may need refreshes as headcount grows. Grants come with vesting schedules, usually four years with a one-year cliff.

In a financing, investors often negotiate whether the pool is expanded before or after their money enters—pre-money pool increases dilute founders more than post-money treatments. Lawyers model the pool on the cap table alongside common and preferred stock. Unallocated pool shares still count in fully diluted ownership even if no one has received them yet.

Standard early-stage plans reserve pool shares in the equity incentive plan approved by the board and stockholders. Grants below fair market value require a current 409A valuation to set strike price correctly.

Why it matters

• Founders: The pool is your recruiting currency. Too small and you cannot hire; too large and you give up ownership unnecessarily.
• Operators: Your offer letter equity comes from this pool—understand strike price, vesting, and what happens in a liquidity event.
• Investors: They want enough pool post-close to support the hiring plan in your deck without immediate another refresh.

Common mistake

Creating a huge pool “just in case” before Series A without a hiring plan. Every unallocated pool share dilutes existing holders on a fully diluted basis.

Related ideas

See option pool refresh, option pool shuffle, and outstanding options.