The option pool (or ESOP pool) is a block of shares set aside for equity incentives to current and future team members. Investors typically require a pool sized to cover hiring until the next round, often 10–20% on a fully diluted basis.
Timing matters: if the pool is created or expanded pre-money, the dilution falls on existing shareholders (mostly founders) rather than the incoming investor — the so-called option pool shuffle. Negotiating pool size and timing is therefore as important as the headline valuation.
Sizing the pool — and who pays for it
An option pool reserves equity to hire and retain employees, typically 10–20% of the fully diluted capital. The contentious question is not the existence of the pool but when it is created relative to a financing. Investors usually require the pool to be set up or topped up before their money goes in — inside the pre-money — which means the dilution falls on founders and existing holders rather than the new investor. Pools are also “refreshed” at later rounds as they are used up. Practical hygiene matters: grants should be board-approved, documented and tracked on the cap table, and the plan rules (vesting, exercise windows, treatment of leavers) should be settled before the first grant rather than improvised later.
The pool negotiation’s arithmetic
The most expensive line in an option pool is not its size but its timing: the investor ask of “a 10–15% pool, pre-money” pushes the pool’s dilution entirely onto existing holders and quietly lowers the effective pre-money valuation. Founder-side standard responses: size the pool from a real hiring plan rather than a template percentage, ensure already-granted options count inside the new pool, and move part of the top-up post-money where possible. In Turkish structures the pool is usually built as a phantom/virtual plan or via repurchased shares; where the income-tax incentive for qualifying tech startups is targeted, plan design must match the Ministry criteria from the start. The pool negotiation looks like an HR topic; it is the valuation negotiation continued by other means.
Frequently Asked Questions
What is an option pool?
An option pool is a reserved block of shares set aside to grant stock options to employees, advisors and future hires.
How big is a typical option pool?
Commonly 10–15% of fully-diluted shares, sized to cover hiring until the next round.
Who bears the dilution of the option pool?
If created pre-money, existing shareholders (founders) bear the dilution; investors often require this, so negotiate the timing.
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