One of the first questions founders face before raising a seed round is how large the employee option pool should be. Get it wrong and it can cost you millions in unnecessary dilution. Get it right and it sets your startup up to attract great talent and negotiate clean terms with investors.

The option pool isn’t just a recruiting tool; it’s a strategic lever that shapes ownership, valuation, and investor alignment. Yet most early founders underestimate its impact on the cap table.

In this guide, founders will learn:

• What an option pool is and why it matters before a seed round
  
  
• How investors think about the pool during negotiations
  
  
• How to calculate the right pool size for your stage
  
  
• Common pitfalls to avoid when setting the pool size
  
  

By the end, founders will have a data-driven framework to determine how big their option pool should be — and how to defend it in a term sheet discussion.

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What Is an Option Pool and Why It Matters Before a Seed Round

An option pool is a reserved percentage of company equity set aside for future employees, advisors, and contractors. It allows startups to offer stock options as part of compensation.

Why Investors Care About It

Investors want to ensure the company can hire key talent after the round without further dilution to their shares. For that reason, they typically require that the option pool be created or topped up before they invest — effectively diluting only the founders, not themselves.

This is often referred to as a pre-money pool increase, and it’s one of the most negotiated elements of a seed-stage term sheet.

Why Founders Should Care About It

For founders, the option pool is a balancing act between two priorities:

• Talent flexibility — enough equity to attract early hires
  
  
• Ownership preservation — limiting unnecessary dilution before the round
  
  

A well-structured pool ensures the company can hire critical talent without constantly renegotiating equity. An oversized pool, however, gives away ownership too early and may never be fully used.

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How Investors Think About Option Pools

Investors view the pool as a forward-looking tool that protects their ownership. When negotiating, they will model the post-money cap table to reflect how much ownership they’ll have after the pool and the round are both in place.

The Pre-Money vs Post-Money Debate

• Pre-money pool: The new shares are created before the investor’s capital enters the company, diluting only founders.
  
  
• Post-money pool: The pool is created after the round, diluting everyone proportionally.
  
  

Investors almost always push for a pre-money pool, while founders benefit from a post-money setup. Knowing this dynamic allows founders to negotiate from a position of clarity.

Typical Seed-Stage Ranges

Most venture investors expect an option pool of 10% to 15% on a fully diluted basis before a seed round. The exact number depends on:

• The size of the existing team
  
  
• The roles expected to be hired over the next 12–18 months
  
  
• The seniority of those hires (executives need larger grants)
  
  
• Whether advisors or contractors will receive equity
  
  

For a seed-stage company with a lean founding team, 10% is usually sufficient. If major hires (e.g., a CTO, VP of Sales) are planned soon after funding, 15% may be justified.

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Framework for Sizing the Option Pool

Step 1: Forecast Key Hires for the Next 18 Months

Investors expect the pool to cover all hires until the next financing round. Create a hiring roadmap that includes each position, expected start date, and target equity grant.

Step 2: Add a 10–20% Buffer

Include a small buffer for unplanned hires or slightly higher equity needs than forecasted. This ensures flexibility without requiring an immediate pool increase later.

Step 3: Model Dilution Scenarios

Run dilution models to understand the impact of different pool sizes on founder ownership.

Example:

This visualization helps founders see that every 5% increase in pool size costs meaningful ownership.

Step 4: Use Benchmarks as a Sanity Check

Benchmark against similar startups in your region or sector. Data from Carta and AngelList show that seed-stage companies average around 12–13% option pools at the time of funding.

Pro Tip:

When investors ask for a 20% option pool, request a hiring plan justification. If the upcoming hires don’t require that much equity, push back or negotiate a smaller pre-money pool.

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Common Mistakes Founders Make with Option Pools

1. Accepting Investor Pool Demands Without Justification

Founders often agree to investor-proposed pool sizes without verifying if they’re necessary. Always model the actual hiring plan first.

Solution: Ask investors to align the pool with a realistic 12–18 month hiring forecast. This shows strategic thinking and protects founder equity.

2. Forgetting About Existing Options

If you already granted equity to early employees or advisors, that counts toward the pool. Expanding it without accounting for those shares results in double dilution.

Solution: Reconcile your existing grants before negotiating a new pool increase.

3. Not Refreshing the Pool Post-Round

After a major hiring push, some startups forget to top up the pool before the next round. That oversight can create friction in Series A negotiations.

Solution: Review the pool at least once a year or before major fundraising events.

4. Confusing Options with Issued Shares

The option pool represents potential shares, not issued ones. Until exercised, they don’t appear as outstanding shares, but investors still include them in the fully diluted ownership model.

Solution: Understand how option accounting affects cap table math and investor perception.

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Negotiating Option Pool Terms During a Seed Round

Align Pool Size With Hiring Milestones

Show investors your hiring plan. A clear forecast reduces the chance of arbitrary pool increases.

Negotiate the Pool Timing

Push for a post-money pool when possible. If not feasible, negotiate a smaller pre-money pool justified by specific hires.

Separate Employee and Advisor Pools

Advisors and consultants can often be granted smaller equity through advisor agreements rather than tapping the main employee pool.

Model Future Rounds

An oversized seed pool compounds dilution in later rounds. A 20% pool at seed that isn’t used can effectively become a discount for Series A investors.

Pro Tip:

Treat the option pool like working capital for talent. Keep it lean, use it intentionally, and replenish only when strategic.

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Checklist: Setting the Right Option Pool Before a Seed Round

• Define your 12–18 month hiring plan
  
  
• Estimate typical equity grants per role
  
  
• Add a small (10–20%) buffer for flexibility
  
  
• Model dilution across multiple pool sizes
  
  
• Compare with market benchmarks (10–15%)
  
  
• Negotiate pool size based on data, not investor preference
  
  
• Review pool status annually or before next round
  
  

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Conclusion and Next Steps

The option pool is one of the most consequential details in a seed-round negotiation. Getting it right ensures the company can hire top talent without compromising founder ownership.

Key takeaways:

• Most seed-stage pools range from 10% to 15%
  
  
• Align pool size with your actual hiring roadmap
  
  
• Push for post-money pool creation when possible
  
  
• Model dilution before signing the term sheet
  
  
• Keep your pool lean and refresh it strategically
  
  

A well-designed option pool signals discipline, clarity, and foresight — traits every investor values in a founder.

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