Fundraising
Option pool (ESOP)
A reserved portion of company equity set aside for future grants to employees, advisors, and contractors — typically 5-15% of post-money at the seed stage.
In plain English
Equity you're giving to people you haven't hired yet. Almost always created or topped-up out of pre-money before an investment closes (the 'option pool shuffle').
Example
Pre-round: 0% option pool. Investor requires 10% post-money pool. The 10% comes out of pre-money — dilutes existing holders (mostly founders), not the new investor. On a $6M pre / $1.2M investment, the founder dilution from the pool is ~12% of pre-cap on top of the investor dilution.
Why it matters
Pool size is one of the most commonly mis-negotiated terms in a seed round. Investors push for larger pools (less dilution for them); founders should size to actual 18-month hiring need. Every 1% top-up is real founder dilution.
Common mistakes
- Accepting a generic 'we always require 15%' without a hiring plan to back it
- Forgetting the pool sits in pre-money — that's why it dilutes only existing holders
- Not budgeting the pool against an actual 18-24 month hiring plan
- Granting from the pool without a 409A or approved share-grant process