Option pool

An option pool is a block of authorized-but-ungranted shares reserved to hire and retain employees after the round. Investors typically require the pool to reach a target size — expressed as a percentage of the fully-diluted post-round cap table (commonly 10-20%) — as a condition of the deal.

The 'pre-money' convention

The pool is almost always sized to hit its target percentage before the new money is added — meaning the shares are minted out of the existing (pre-round) cap table, not out of the new investor's slice. In practice this means founders (and any converting SAFEs) absorb the entire cost of the pool top-up, even though the pool exists to benefit future hires the new investor's capital will help fund.

The 'option pool shuffle'

This convention is exactly why a round that 'sells 20% for the money' can still cost founders 30 points of ownership: the round's own share sale is 20%, and the pre-money pool top-up needed to reach (say) a 10% post-round target adds another 10 points, taken entirely from the founders' side. Investors' post-money ownership is protected from the pool top-up; founders' is not. See the blog post on the option pool shuffle for the full mechanics and a common negotiating counter (asking for the pool to be sized smaller, or created post-money instead).

Sizing it correctly

A pool sized too small forces a fresh (founder-dilutive) top-up before the next round; a pool sized too large gives away equity nobody's hired against yet. Most seed/Series A pools land between 10% and 15% of the post-round fully-diluted table, sized against an actual hiring plan for the 12-18 months the round is meant to fund.