The option pool shuffle: why the pool dilutes you, not your investor

Here's a sentence that sounds reassuring and is quietly misleading: 'we're raising $2M at an $8M pre-money, so we're selling 20% of the company.' The 20% is correct — for the investor. It's very often not correct for you, because almost every term sheet also requires a new or top-up option pool, and that pool is conventionally sized before the new money arrives. The investor's 20% is protected from the pool's dilution. Yours isn't.

The convention, stated plainly

When a term sheet asks for a post-round option pool of, say, 10%, the standard mechanic creates those pool shares 'pre-money' — meaning they're minted out of the existing cap table's side of the ledger before the new investment is layered on top. The new investor still gets exactly the ownership percentage they negotiated. The pool's cost is borne entirely by whoever held shares before the round: founders, employees with existing grants, and any already-converted SAFEs.

Running the actual numbers

Take a company with 9,000,000 founder shares and no existing option pool, raising $2,000,000 at an $8,000,000 pre-money valuation with a 10% post-round option pool requirement. Solving the pre-money top-up (the pool has to reach 10% of the total AFTER it's created and after the new money comes in) takes a small fixed-point calculation — Foundily's round modeller does it instantly — but the result is exact.

Where the gap comes from

The investor's stated ask — 20% — is exactly what they got: 2,571,429 of 12,857,143 shares is 20.0%, no more, no less. But founders didn't go from 100% to 80%; they went from 100% to 70%. The missing 10 points are the option pool, and every one of those points came out of the founders' side of the table, not the investor's. Put another way: the round 'cost' founders 30 points of ownership to raise money that, by its own headline math, was only supposed to cost 20.

Why the investor's number stays clean

This isn't an accident or a trick — it's a direct consequence of where the pool sits in the calculation. Because the pool is created before the new money's price per share is even solved for, the new investor's percentage is computed against a denominator that already includes the pool. Founders, by contrast, watch their absolute share count stay fixed while the pool eats directly into their percentage of the total, exactly as if it were an additional round happening in parallel that only they are paying for.

What you can actually negotiate

You generally can't refuse to have an option pool — investors need room to hire the team that's going to make the round's money work, and a business with no equity left to grant is a real problem. But the size of the pool and whether it's created pre- or post-money are both negotiable in principle, even if post-money pools are rare in practice. A pool sized against an honest 12-18 month hiring plan, rather than a round-number default because '10% is standard,' is the single highest-leverage thing to push on: every point you shave off the target percentage is a point you keep, dollar for dollar in dilution terms.

The number to actually watch

Before signing a term sheet, don't just check the investor's percentage against what they said they'd own — check your own. Model the round with the pool included, using the actual target percentage in the documents, and look at what you're left holding. If it's meaningfully below '100% minus the investor's stated percentage,' the pool is where the difference went. Foundily's option pool calculator runs exactly this comparison — with the pool and without it — so the gap is visible before you sign, not after.