Definition
An option pool is a reserve of equity (typically employee stock options) set aside for hiring and incentives. Option pools dilute existing shareholders on a fully diluted basis.
How to use it
- Option pools are often increased during fundraising; the timing determines who bears dilution.
- Always define the pool as a percent of fully diluted shares (not just issued shares).
Common mistakes
- Confusing granted options with the full pool reserve.
- Modeling pool % on the wrong basis (issued vs fully diluted).
Why this matters
This term matters because cash timing and risk are usually the difference between a plan that works on paper and a plan that survives. Use consistent definitions so decisions are comparable over time.
Practical checklist
- Write a 1-line definition for "Option Pool" that your team will use consistently.
- Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
- Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
- Use a calculator that references this term (e.g., Option Pool Shuffle Calculator) to sanity-check assumptions.
- Read the related guide (e.g., Option pool shuffle: how it impacts founder dilution (with example)) for context and common pitfalls.
Where to use this on MetricKit
Calculators
- Option Pool Shuffle Calculator: Estimate founder dilution impact when the option pool is increased to a target percent of post-money (simplified).
Guides
- Option pool shuffle: how it impacts founder dilution (with example): Understand the option pool shuffle, why it's negotiated, and how a post-money option pool target changes dilution for existing holders.
- Pre-money vs post-money valuation: formulas, ownership, and pitfalls: Learn pre-money vs post-money valuation, how investor ownership is estimated, and why the option pool shuffle changes effective dilution.
- Fundraising & valuation hub: pre/post-money, SAFEs, notes, and liquidation prefs: A practical hub for startup fundraising and valuation basics: pre/post-money, pro rata, option pool shuffle, SAFE/note conversion, and liquidation preference outcomes.