Option Pool

An option pool is a block of shares reserved for future employee equity grants. It’s usually created or expanded during funding rounds and is expressed as a percentage of the company’s fully diluted shares (often 10–15% at seed).

How the Option Pool Works

• The pool is a reserve of shares the company can grant to employees, advisors, and sometimes executives.
• It is part of the fully diluted share count (i.e., assuming all options, warrants, and convertibles become shares).
• As the company hires, grants are made out of this pool, reducing the unallocated portion but not changing the total pool size until the board decides to expand it.

Dilution from the Option Pool

• When the board creates or expands the option pool, it issues new shares.
• These new shares dilute existing shareholders (founders, early employees, and sometimes investors) because the total number of shares increases while their absolute share count stays the same.
• This is why your ownership percentage can shrink even if you don’t sell any shares and even before new investors come in.

Example Setup

• You join a seed-stage startup with a grant equal to 1% of the fully diluted company.
• At that time:
  • 100,000 shares outstanding
  • 10% option pool = 10,000 reserved shares
  • Fully diluted shares = 110,000
  • Your grant = 1,000 shares (1% of 110,000)

Scenario 1: Pool Expands to 15% Before Series A

• The board expands the pool by 5,000 shares.