When founders raise a pre-seed or seed round, one of the first things investors ask about—right after valuation—is your option pool. But many first-time founders misunderstand what an option pool is, how it affects ownership, and how to plan for it strategically.

At Zecca Ross Law, we help early-stage startups make smart, legally sound decisions from the start. This guide breaks down what an option pool is, how it works, and how to avoid common pitfalls that can cost you more equity than you realize.

What is an Option Pool?

An option pool is a set percentage of your company’s equity that’s set aside for future hires, advisors, and sometimes existing team members. It’s typically authorized as part of your cap table and structured through a formal equity incentive plan.

Think of it as a budget for stock options—designed to attract and retain talent without needing to pay high cash salaries.

Why Do Investors Care About the Option Pool?

Venture investors want to make sure your startup has enough equity reserved to recruit and incentivize key team members after they invest. But here’s the catch: they usually ask founders to expand the pool before the funding round closes, so that the dilution hits you, not them.

This is called pre-money pool expansion, and it can significantly affect your ownership if you’re not prepared.

Option Pool Example: Understanding the Dilution Impact

Let’s say you and your co-founder own 100% of your company. You raise a $2M seed round at a $10M pre-money valuation. Your investors ask for a 15% option pool on the pre-money cap table.

That means you’re now sharing your equity not just with investors, but also with a future team that doesn’t exist yet. Your ownership drops more than expected—because the pool is created before the investor money comes in.

This often surprises founders during term sheet negotiations.

How Big Should Your Option Pool Be?

There’s no one-size-fits-all number, but here’s a general guide based on stage:

  • Pre-Seed / Seed: 10–15%
  • Series A: 10–12%
  • Series B+: 5–8%

The right pool size depends on your hiring plan. Ask yourself:

  • How many people do you need to hire before your next round?
  • What equity ranges will you offer for each role?
  • Will you need to reserve equity for advisors or executives?

We help our clients model realistic hiring scenarios and negotiate for a pool size that makes sense—not just a number an investor pulls from a template.

Tips for Negotiating the Option Pool

  • Push for post-money pool expansion whenever possible, or at least negotiate a smaller pre-money pool size.
  • Use data to justify a smaller pool—show your hiring plan and expected grants.
  • Be strategic about your offers—you don’t need to over-grant early team members if you have a strong vision and culture.
  • Work with your lawyer to understand how the option pool appears on your fully diluted cap table—before you sign a term sheet.

Avoiding Common Option Pool Mistakes

  • Agreeing to a large option pool without hiring projections
    → This can leave unused equity sitting idle, diluting you unnecessarily.
  • Forgetting to refresh the pool before the next round
    → If you don’t plan ahead, future investors will ask for another expansion, meaning even more dilution.
  • Skipping legal review of the plan structure
    → Without the right documentation (stock option plan, board approvals, 409A valuations), you risk tax and compliance issues down the line.

Final Thoughts

The option pool is a critical part of your cap table strategy—and it directly affects how much of your company you own as a founder. Don’t treat it as just another checkbox in your financing round.

At Zecca Ross Law, we help startup teams understand the math and the legal mechanics behind their equity structure—so they can raise money with confidence and retain control of their vision.

Need a second look at your option pool before signing a term sheet?
Schedule a free consultation with our legal team.