Option pools dilute founders more than most realize. Here's how to size them honestly, negotiate pre-money vs. post-money, and refresh them across rounds.
The option pool is the pool of shares reserved for future employee equity grants. Every priced round negotiates its size — and where it sits in the cap table. Founders who don't understand the pre-money option pool shuffle systematically over-dilute.
Investors typically require the option pool be created (or topped up) in the pre-money — meaning the dilution comes entirely from founders and existing shareholders, not the new investors. On a $10M pre-money round with a 15% post-money option pool, founders effectively see valuation of ~$8.5M for dilution purposes.
Build a hiring plan for the next 18-24 months. For each planned hire, apply market equity ranges (VP: 0.5-1.5%, Director: 0.15-0.4%, Senior IC: 0.1-0.25%, IC: 0.05-0.15%). Sum the total. That's your honest pool need — usually 8-12% at seed, 10-15% at Series A. Investors will push higher; push back with the hiring plan.
Every priced round creates or tops up the pool. Founders should minimize top-ups by using the pool efficiently between rounds (don't over-grant early). Top-ups requested by new investors dilute existing shareholders — including previous investors, who often push back with founders.
Post-money option pool: dilution is shared across all shareholders including new investors (rare, favorable to founders). Post-round top-up: pool sized after round based on need (favorable, requires negotiation). Split: half pre-money, half post-money (compromise; increasingly common in 2025-2026).
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