The option pool shuffle: who really pays for the pool?
Why a pool created before the new money dilutes only founders — and how to negotiate the right size.
Almost every term sheet has the same clause: the company must have a 10–15% option pool after the round, to hire and retain people. It sounds neutral, but one detail changes who pays.
The detail: before the money
The pool is usually created inside the pre-money — before the new money comes in. The investor gets exactly the stake they negotiated, and the pool dilutes only existing holders: founders, granted options and convertibles.
The effect on price
At the same pre-money, a bigger pool means more shares before the round and therefore a lower price per share. In practice, the pool cuts the founders' effective pre-money.
The example
Founders with 9M shares, a $5M round at $20M pre-money, a 10% post-round pool target. The investor ends with 20% (5 ÷ 25), the pool with 10%, and founders with the rest — everything the pool took came out of their slice.
How to negotiate
- Bring a hiring plan: the pool should cover hires until the next round, not "forever".
- Count granted options and the unused pool before accepting a number.
- Negotiate the size, not just the valuation: 5 points less pool can be worth more than a few million more pre-money.
The dilution calculator works out the pool needed to hit the target and shows the cap table after the round.