Option pool impact
Companies set shares aside for future employees. That set-aside is the option pool, and where it is created in the deal decides who pays for it. Put in your round and see the difference.
Skip to the calculatorOption pool
Those shares have to come from somewhere, and there are only two places. Pre-money means the pool is created before the investment arrives, so it comes out of what the founders already hold and they pay for all of it. Post-money means it is created after, so it shrinks everyone including the investor who just paid in. The words sound like scheduling. They are actually about who is out of pocket.
This is the most expensive misunderstanding in a seed round, and most cap table tools skip it entirely. The investor's percentage is fixed by the deal either way. The pool's placement only decides who funds it, and the answer is almost never them.
Worked example
You hold 10,000,000 shares and agree €2m at an €8m pre-money, with a 10% option pool. If the pool is pre-money, you keep 70%, the investor takes 20%, and the pool is 10%. The investor really paid €0.70 a share, which values your holding at €7m, not the €8m on the term sheet. If the pool is post-money instead, you keep 72% and the investor 18%. Two points of ownership, and a million euros of valuation, decided by which side of the money the pool sits on.
How to calculate the cost of an option pool in a funding round
What the placement costs you
€1,000,000As a share of the company after the round.
Grants made or agreed. These still count for ownership; they are just no longer yours to offer.
Before the money (pre-money)
- Founders70.0%
- New investor20.0%
- Option pool10.0%
After the money (post-money)
- Founders72.0%
- New investor18.0%
- Option pool10.0%
How this is calculated
- The investor's ownership is amount raised ÷ post-money valuation, whichever way the pool is placed.
- Pre-money pool: existing holders keep 1 − investor share − pool share, so the total share count is their shares ÷ that fraction.
- The investor's real price per share = amount raised ÷ the shares they actually received.
- Effective pre-money = that real price × the existing share count. The gap against the headline is what the placement cost.
- Post-money pool: the round is priced first, then the pool dilutes every holder in proportion.
What this model leaves out
- The whole pool counts as outstanding, which is the fully diluted basis investors price against.
- Grants are counted as a single number, not as individual awards with their own vesting. What is left to offer is the pool minus what has been promised.
Common questions
- What is the option pool shuffle?
- It is the practice of agreeing a pool as part of a round and placing it before the money, so that the founders fund the whole of it. The investor's percentage is worked out after the pool exists, so the pool comes out of the existing holders alone. Nothing about it is hidden or improper and it is the market norm, but it is rarely stated plainly in the conversation, and a founder who models the round without the pool gets a materially wrong answer. This tool puts the two placements side by side so the difference is a number rather than an argument.
- Who pays for an option pool?
- It depends entirely on whether the pool is created before or after the money, and that single choice is worth several percentage points. Created before the money, the existing holders fund all of it and the new investor funds none. Created after, everyone including the new investor is diluted in proportion. The same 10% pool, on the same round at the same headline valuation, can cost the founders roughly 10% of the company or roughly 8% of it depending on nothing but the timing.
- What is the effective pre-money valuation?
- It is what the investor is really paying for the company once a pre-money pool is taken into account. If the agreed pre-money is EUR 8m and a 10% pool is created before the money, the founders' existing shares are effectively being valued at less than EUR 8m, because part of that valuation is shares that do not exist yet and are reserved for people not yet hired. The effective figure is the honest comparison between two term sheets, and it is why a higher headline valuation with a larger pre-money pool can be the worse offer.
- How big should an option pool be?
- The size that matters is the one that covers the hires named in the plan you are raising against, not a round number. Investors commonly ask for 10% to 15% at seed, and the argument for a smaller pool is a specific hiring list with specific grants rather than a general objection. An oversized pool is not free: any of it left unissued at an exit was funded by the founders and returns to nobody in particular. The tool reports how many shares remain to offer, which is the number that answers the question.
- Does an unused option pool get returned to the founders?
- Not directly, and this is worth understanding before agreeing to a large one. Unissued shares in the pool are usually not issued at all, so at an exit they simply do not participate and the proceeds are split across the shares that do exist. That means the value flows back across all holders in proportion rather than back to the founders who funded the pool. The founders diluted themselves to create it, and they recover only their share of what goes unused.
- Does the pool dilute existing investors as well as founders?
- A pool created before the money dilutes every existing holder, which includes earlier investors as well as the founders, and spares only the new investor coming into that round. A pool created after the money dilutes everybody including the new investor. So an earlier investor with a meaningful stake has the same interest as the founders in where the pool sits, which is occasionally useful when the two of you are negotiating with a new lead.
Terms on this page
- Option pool shuffle Placing the option pool before the money, so the founders fund all of it and the incoming investor funds none.