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Operator guideOption pool decisions are dilution decisions. Investors typically require expansion before their round; the timing affects whose ownership absorbs the dilution.
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Option Pool Sizing Guide · File.Business

Option pool sizing. How much to reserve.

Option pool size matters: too small and you cannot hire; too large and founders are over-diluted. Standard at incorporation: 10-15% of fully-diluted shares. At each funding round, investors typically require pool top-ups before their investment, which dilutes existing shareholders. This guide covers sizing strategies.

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Key facts

Start here.

Key fact
Initial pool

10-15% of fully-diluted shares at incorporation.

Key fact
Pre-money expansion

At priced round, investors often require pool top-up to a defined size before their investment.

Key fact
Dilution mechanics

Pre-money pool top-up dilutes existing shareholders; post-money top-up dilutes all including new investors.

Key fact
Hiring plan informs size

Pool size should support next 18-24 months of hiring.

Key fact
Refresh periodically

Most companies refresh pool every funding round.

In depth

The full picture.

01

Initial pool at incorporation

Typically 10-15% of fully-diluted shares. Founders typically allocate this before or just after incorporation. Sized to cover anticipated grants over the next 18-24 months.

02

Pre-money pool top-up at fundraising

Almost all priced equity rounds include a pre-money option pool top-up: investors require the pool be expanded BEFORE their investment closes, so the dilution comes out of existing shareholders' equity rather than the new investors'. Standard ask: top-up to 15-20% of post-investment fully-diluted shares.

03

Dilution math

Example: pre-money $8M, raise $2M, pool top-up from 10% to 15% in pre-money. Existing shareholders dilute proportionally to the top-up. Founders pre: 80% (after 10% pool, 10% reserved). After top-up to 15% pre-money: founders dilute to ~76%. Then Series A 20% post-money dilutes to ~61%. Then post-money pool may be added.

04

Sizing the next pool

Estimate hiring plan over next 18-24 months. Standard equity grants: VP-level 0.5-1%, Director 0.25-0.5%, Senior IC 0.1-0.25%, Mid IC 0.05-0.15%, Advisors 0.1-0.25%. Sum projected grants; that is your target pool size.

05

Common mistakes

Pool too small at incorporation (you run out before next round). Underestimating hiring at later rounds (forced to expand mid-round). Letting investors choose pool size (they will push for larger pre-money expansion).

06

Refresh cadence

Most companies refresh pool at each priced round. Some refresh in between as needed via board action + shareholder approval.

07

Re-up grants

Many companies provide "re-up" grants to high performers as initial grants vest. Plan for this in pool sizing.

08

Exercise window post-termination

Standard 90-day exercise window. Some plans extend to 10+ years for ISO conversion to NSO. Plan provisions affect retention.

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FAQ

Common questions.

How big should my initial pool be?
10-15% of fully-diluted shares is standard.
What is pool top-up?
Investors at funding rounds typically require pool be expanded before their investment, diluting existing shareholders rather than them.
Can I negotiate pre-money vs post-money pool?
Yes. Post-money top-up is founder-friendly (dilutes everyone); pre-money is investor-friendly (only existing shareholders).
How do I size the next pool?
Estimate hiring plan × typical grant sizes over 18-24 months.
What is typical VP-level equity?
0.5-1% for VP at Series A startup. Variable.
Should I include advisors in the pool?
Yes. Typical advisor grants 0.1-0.25%.
What if I run out before next round?
Board can expand pool with shareholder approval. Often messy mid-round.
How does refresh work?
Each priced round, investors propose pool top-up. Existing shareholders dilute accordingly.

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