Full Definition
An option pool (also called an Employee Stock Option Pool or ESOP) is a percentage of a company's shares reserved for granting stock options and equity to current and future employees, advisors, and consultants. It's a critical tool for attracting and retaining talent in startups that can't compete on salary alone.
Typical Option Pool Sizes
- Pre-seed/Seed: 10-15% of fully diluted shares
- Series A: 15-20% (investors often require refreshing the pool)
- Series B+: 10-15% (top-up as needed)
Key Negotiation Point
Investors typically want the option pool created before their investment (from the pre-money valuation), which dilutes founders more. Founders should negotiate the pool size based on a realistic hiring plan rather than accepting an oversized pool.
Real-World Example
A company creates a 15% option pool before its Series A, allocating shares for a VP Engineering, VP Sales, and 10 individual contributors over the next 18 months.
Related Terms
The right to buy company shares at a predetermined price, commonly used as employee compensation in startups.
The process by which an employee or founder earns their equity over time based on continued service.
Ownership interest in a company, represented by shares of stock.
A spreadsheet showing the equity ownership, dilution, and value of shares in a company.
The reduction in existing shareholders' ownership percentage when new shares are issued.
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