Chartered Accountant · ICAI M.No. 153926 · FRN 136869W
What the pool is
The pool is a reserved set of shares from which the company grants options. It is part of the cap table, so creating or enlarging it dilutes the existing shareholders — usually the founders, since pools are often topped up just before a funding round.
How big to make it
There is no statutory cap for a private company, so size it to your hiring plan. Early-stage startups commonly reserve around 10%, within a typical 5–15% range, and replenish at each round as the team grows. Too small and you can’t attract senior hires; too large and you over-dilute founders early.
A worked example
Take a startup with 10,00,000 shares that sets aside a 10% pool of 1,00,000 options for its first hires. When it raises a round, the investor commonly asks for the pool to be sized to about 10% on a post-money, fully-diluted basis — and that increase is usually carved out of the founders’ stake before the investor’s money goes in, so it effectively dilutes the founders rather than the new investor. This ‘option pool shuffle’ is one of the most overlooked terms in a term sheet. Sizing the pool too large to look generous therefore quietly costs founders equity; sizing it too small means going back for shareholder approval mid-hiring. A workable approach is to reserve only what you expect to grant before the next round, then replenish at each round. See how to set up the plan, and our ESOP advisory service can model the dilution on your cap table.