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.
Start here.
10-15% of fully-diluted shares at incorporation.
At priced round, investors often require pool top-up to a defined size before their investment.
Pre-money pool top-up dilutes existing shareholders; post-money top-up dilutes all including new investors.
Pool size should support next 18-24 months of hiring.
Most companies refresh pool every funding round.
The full picture.
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.
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.
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.
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.
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).
Refresh cadence
Most companies refresh pool at each priced round. Some refresh in between as needed via board action + shareholder approval.
Re-up grants
Many companies provide "re-up" grants to high performers as initial grants vest. Plan for this in pool sizing.
Exercise window post-termination
Standard 90-day exercise window. Some plans extend to 10+ years for ISO conversion to NSO. Plan provisions affect retention.
Common questions.
What is an option pool?
How big should my option pool be?
How does the option pool affect founder dilution?
When is the option pool created?
How are options granted from the pool?
What happens if the pool runs out?
How does the pool relate to the cap table?
Do all startups need an option pool?
Can File.Business help me manage my option pool?
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