Option Pool
A reserve of company shares set aside to grant stock options to employees, advisors, and other service providers.
Definition
An option pool is a portion of company equity allocated for employee compensation through stock options. It allows startups to attract and retain talent by offering equity participation in the company's success.
Typical Pool Sizes
Pre-Seed/Seed Stage
10-20% of company equity
Series A
15-20% pool refresh or new allocation
Later Stages
10-15% refreshes as needed
Total Employee Equity
15-25% of company over time
Key Considerations
- Pool Timing: Created before or after funding rounds
- Dilution Impact: Affects founder and investor ownership
- Grant Guidelines: Allocation policies for different roles
- Vesting Schedules: Typically 4 years with 1-year cliff
- Strike Price: Exercise price based on 409A valuation
- Pool Management: Regular monitoring and refreshes
Strategic Benefits
- Talent Attraction: Compete with larger companies for talent
- Retention Tool: Vesting schedules encourage long-term commitment
- Performance Alignment: Employees invested in company success
- Cash Conservation: Reduce cash compensation needs
- Culture Building: Create ownership mentality
Real-World Example
Typical Series A Setup:
Create 20% option pool before Series A funding to ensure adequate equity for key hires over next 18-24 months without diluting new investors.