What is an Option Pool?
Option Pool
An Option Pool is a block of common stock reserved by a startup to recruit and incentivize future employees, advisors, and key contributors.
Why It Matters for Startups
Governs the legal rights and ownership distribution of the entity; configuring Option Pool is critical for managing long-term cap table health and alignment during employee compensation planning and option grants.
Detailed Deep Dive
An Option Pool is a block of common stock reserved by a startup to recruit and incentivize future employees, advisors, and key contributors. Usually representing 10% to 20% of the company's equity, the option pool is typically created or expanded immediately prior to a priced funding round. The size of the pool is factored into the pre-money valuation, meaning the dilution from its creation is borne by the existing founders.
Frequently Asked Questions
Q:What is the typical size of an option pool?
Usually between 10% and 20% of the startup's total outstanding stock.
Q:Who bears the dilution when an option pool is created?
If created prior to a priced round, the dilution is borne entirely by the existing founders, reducing their pre-money share price.
Quick Facts
- CategoryLegal
- Key ApplicationEmployee compensation planning and option grants
Coverage Trend12 Weeks
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