Written by James Chae — Co-Founder, Expert Sapiens
Reviewed June 2026
Fundraising & Equity
What Is Option Pool?
Definition
An option pool is a block of company shares set aside specifically to grant as equity compensation to employees, advisors, and future hires — typically 10-20% of fully diluted shares at a startup.
Option pools are usually created or expanded right before a funding round, at the investor's request, so the company has enough equity on hand to hire the team needed to hit its next milestones without going back to the cap table for shareholder approval every time. The size of the pool is heavily negotiated: investors want it large enough to cover 12-18 months of hiring, while founders want it as small as possible since a larger pool is more dilution.
The key negotiating point is timing: if the pool is created "pre-money" (before the new investment is valued), the dilution falls entirely on existing shareholders — mainly founders. If it's created "post-money," new investors share in absorbing that dilution too. This single structural detail can be worth several percentage points of founder ownership.
Why it matters
Founders frequently agree to an option pool size without realizing whether it's structured pre- or post-money, quietly giving up meaningful equity in the process. A startup attorney or fractional CFO reviewing the term sheet can flag this before signing and negotiate a smaller, post-money pool where leverage allows.