Option Pool Sizing: Clear the Bed Before You Plant, Not After

An option pool is the block of shares you reserve to pay the people you hire in equity. I find it easiest to think about by picturing a garden bed you clear before planting season: you dig out a plot and leave it open, ready for the seedlings you plan to grow next spring. The pool is that cleared ground, reserved space with no plants in it yet. The harder question is how big to dig and whose soil you give up.

Most founders treat the pool as a single line to sign off on. So they accept the default, the bed gets cleared far too wide, and a year later half of it sits bare. That open ground came out of someone’s ownership.

What an option pool actually reserves

Start with the soil, because the whole trick lives in it.

You issue stock options to employees as an incentive. Options are a claim on shares: stay through your vesting schedule, do good work, and you can exercise them later. They cost no cash today, which makes founders treat them as close to free. But every grant is ownership handed out of the company, and every grant dilutes everyone already on the cap table.

The option pool is the reserve you carve out for those future grants before you plant anything. Investors want it cleared and ready before they fund you, so the next round of hires can be paid in equity without anyone scrambling to issue stock mid-round. That part is reasonable. A gardener clears the bed before the seedlings arrive too. What you are deciding is how wide you dig, and when.

Size the bed to what you will actually plant

A good gardener does not clear the whole back yard and hope. They look at what they plan to grow, count the seedlings, and dig a bed that fits.

Do the same with your pool. The right number comes from the equity the people you actually hire over the next 12 to 18 months will need: the key recruits, the early team you cannot ship without. Build that list, attach a grant to each role, and add it up. Now you have a number you can stand behind.

A pool sized to your hiring plan usually comes in smaller than the default 15-to-20 percent ask. Less ground given up, and a stronger case when you sit down at the table.

pool % = planned grants (next 12 to 18 months) ÷ fully diluted shares

Over-digging carries a cost. Shares you reserve but never grant sit in the pool like a cleared bed no one planted. If you reserved 20 percent and the year of hiring only needed 9, that gap is ownership you gave away for nothing. You diluted yourself to grow an empty patch of dirt.

When you dig decides whose soil you give up

Here is where the timing starts to cost you money.

Picture a clean valuation. An investor offers you a pre-money number, a price that values the company before their cash lands. Then the term sheet adds one line: a fresh option pool, sized at 15 or 20 percent, cleared pre-money.

Cleared pre-money means the new ground comes out of the old plot, the founders’ plot, before the investor buys in. The investor’s percentage gets calculated as if the pool already exists. So the dilution from those reserved shares lands on the founders and existing shareholders, not on the investor. The investor walks in holding the stake they paid for, untouched by the bed they want you to dig.

The math is simple: a pre-money pool lowers your effective valuation. You agreed to a price, then handed back a slice of the plot to fund equity the investor benefits from too.

A pre-money pool reads like generosity to your team. It is really ground the investor wants you to dig out of your own soil.

A post-money pool clears the bed after the round closes, so the new ground comes out of every plot, founders and the new investor alike, in proportion to ownership. The shares are the same; the difference is who pays for them. Whether that one line reads “pre” or “post” can move a sizable share of your company.

Why founders never see the cost

Stock dilution is the drop in existing shareholders’ ownership when a company issues new equity. Founders start at one hundred percent and often hold under 35 percent by the later stages, so a few points feel like background noise in a process already crowded with it.

The cost also hides behind a good story. “We are reserving equity for the team” sounds like leadership, not a loss of ground. And the pool sits buried among the terms founders fixate on: liquidation preference, voting rights, the board seats. It looks like paperwork while it does some of the heaviest lifting on the whole sheet.

Investors are not villains here. They are negotiating, and a wide pre-money pool is a smart, accepted way to lower the effective price they pay. Your job is to negotiate back, which means walking in already knowing the size of the bed you need, so the default number has nothing to anchor to.

I watched a founder named Dana do this at her seed round. The lead pushed for an 18 percent pre-money pool. Dana came in with a one-page hiring plan: four engineers, one designer, a head of sales, each with a grant attached. It added up to roughly nine percent. She put the plan on the table, and the 18 dropped to 10, cleared post-money. That single page of forecasting was worth more than a point of her company.

Frequently asked questions

How big should an option pool be?

Term sheets often ask for 10 to 20 percent, with 15 common at seed and Series A. But that is the investor’s number, not your own. Size the bed to the people you actually plan to hire over the next 12 to 18 months, and the figure you reach is often lower.

Does the option pool dilute founders or investors?

It depends on when you dig it. A pool created pre-money dilutes the founders and existing shareholders while the investor’s stake stays whole. A pool created post-money dilutes all the holders in proportion, including the new investor. That single choice is one of the most valuable terms on the sheet.

Can you negotiate the option pool?

Yes. Founders usually have the power to negotiate both the size of the pool and whether it sits pre-money or post-money, and both move your effective valuation. These are normal, expected asks. The founders who lose points are usually the ones who never knew there was a point to win.

What happens to unused shares in an option pool?

Shares you reserve but never grant stay put, like a cleared bed you never planted. If you over-clear the pool, you diluted yourself for equity no one received. That is the cost of copying a template instead of forecasting, and one more reason to size the bed to a plan you can defend.

The bottom line

An option pool is good and necessary. Your team should own a piece of what they help grow. But the size and the timing are your call to set, not the investor’s to default. Dig the bed to fit what you will actually plant, push it post-money, and you stop paying for open ground you never use.

This is where a model earns its keep. Run your cap table with a pre-money pool, then again with a post-money one, and watch your ownership at exit move. Once the cost shows up in numbers, the negotiation stops feeling like an abstraction and starts feeling like money, because it is.

You should know where the money is going, including the equity you give away before a single seedling goes in the ground. CX Cash puts that cost in front of you: model the dilution and see whose soil you give up before you sign. Grab our investor update template and cap table and dilution calculator, run your own pool both ways, and pass this to the next founder about to sign a term sheet they have not modeled yet.