Glossary

Option Pool

An option pool is a chunk of company shares set aside for current and future employees, usually 10–20% of the company at any given time. Employees receive options (the right to buy shares at a fixed price) instead of shares directly, with vesting tied to tenure.

The pre-money option pool gotcha

When you raise a priced round, investors usually require the option pool to be expanded before the investment closes. That expansion comes out of the pre-money valuation, which means founders bear the dilution, not the new investor.

Example: $4M pre-money, $1M raise, investor wants 15% post-close pool.

Without the trick: founders dilute by 1M / 5M = 20%, investor owns 20%.
With the pre-money pool: pool expansion adds shares before the round, so founders dilute by about 33% to maintain a 15% pool and a 20% new-investor stake.

How to negotiate it

Counter with a hiring plan. Justify a smaller pool (8–12%) by showing what hires you actually need before the next round.
Push pool expansion to post-money. Investors will resist, but it's a fair ask if your hiring plan is conservative.
Model both scenarios in the cap table before signing the term sheet.

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Option Pool

The pre-money option pool gotcha

How to negotiate it

Cap Table

Dilution

Post-money valuation

Pre-Money Valuation

The pre-money option pool gotcha

How to negotiate it

The pre-money option pool gotcha

How to negotiate it

Related terms

Cap Table

Dilution

Post-money valuation

Pre-Money Valuation

The pre-money option pool gotcha

How to negotiate it