Calculate your Silicon Valley startup's option pool with precision. Understand pre vs post-money allocation, dilution mechanics, and SF standards (15-20% at Series A). Free calculator + templates.
An option pool (also called an Employee Stock Option Pool or ESOP) is a reserved percentage of your startup's equity designated exclusively for employee stock options. In Silicon Valley, option pools are the primary mechanism for attracting world-class engineering, product, and business talent to early-stage startups that can't yet compete on cash compensation with Google, Meta, or established tech companies.
Silicon Valley has established clear market standards: expect investors to request a 15-20% option pool at your Series A, with pre-seed and seed-stage companies typically reserving 10-15%. These percentages represent fully diluted ownership—meaning they account for all outstanding shares, options, warrants, and convertible securities.
The critical decision every Silicon Valley founder faces: Should you create your option pool on a pre-money or post-money basis? This single choice determines whether founders or investors absorb the dilution from employee equity grants.
Understanding the timing of option pool creation is essential because it directly impacts founder dilution. Here's how the two approaches work:
In a pre-money structure, the option pool is created immediately before the financing round closes. This means founders dilute themselves to create the pool, and investors purchase their shares after the pool exists.
Example: $10M Series A with 20% pre-money option pool
The founders bear the full cost of the option pool because it's deducted from their ownership percentage before the new money arrives.
In a post-money structure, the option pool is created after the investment closes. Both founders and investors dilute proportionally to create room for employee equity.
Same example with post-money pool:
This structure is more favorable to founders but less common in Silicon Valley venture deals. Most term sheets specify pre-money pools unless explicitly negotiated otherwise.
For a pre-money option pool, calculate founder dilution using this formula:
Founder % = (1 - Option Pool %) × (Pre-Money Valuation ÷ Post-Money Valuation)
If you're raising $3M on a $10M pre-money valuation with a 20% option pool:
Without the option pool, founders would own 76.9%. The 20% pool costs founders an additional 15.4 percentage points of dilution.
Option pool sizes in Silicon Valley follow predictable patterns based on startup stage, hiring plans, and investor expectations. Here's what to expect:
Pre-seed companies raising under $1M typically reserve a smaller option pool because headcount remains low. At this stage, you're hiring your first 3-5 employees—often a technical co-founder equivalent, an early engineer, and possibly a designer or product lead.
Typical grants at pre-seed:
Seed-stage companies ($1M-$3M raise) expand pools to 12-15% to accommodate hiring through product-market fit. You're building an initial product team of 8-15 people.
Typical grants at seed:
Series A is where Silicon Valley investors firmly establish 15-20% as the market standard. At this stage, you're scaling from product-market fit to repeatable growth, hiring 30-50 employees over 18-24 months.
Typical grants at Series A:
Post-Series A companies typically create refresh pools of 10-15% with each major round to accommodate continued hiring and retention grants for existing employees whose initial options have vested.
Let's walk through a complete cap table evolution to see exactly how option pools impact founder ownership through multiple funding rounds.
Two founders incorporate with 8,000,000 shares each (16,000,000 total):
Before raising $500K on a $4M pre-money valuation, investors require a 10% option pool:
After the $500K investment closes:
You've used 4% of your original 10% pool for early hires. At Series A, investors want a full 20% pool going forward. This means adding 14% in new options before the round closes.
Before Series A ($3M on $10M pre-money):
After pool expansion but before Series A closes:
After Series A closes ($3M investment):
Total founder dilution from option pools: Founders went from 100% ownership to 57.8% combined. Of the 42.2% dilution, 20 percentage points came from option pools and 22.2% from investors. The option pools represent nearly half of all founder dilution.
Follow this process to calculate your exact option pool dilution before your next fundraising round:
You need these numbers:
Add all securities together:
Fully Diluted Shares = Common Shares + Preferred Shares + Option Pool + Warrants + Convertible Notes (on an as-converted basis)
Check your term sheet or discuss with investors. For Silicon Valley Series A, assume 15-20% unless told otherwise.
If your current pool is 8% but investors want 18%, you need to add 10% more. Use this formula:
New Option Shares = (Target Pool % × Current Fully Diluted Shares) ÷ (1 - Target Pool %) - Current Pool Shares
After creating the new pool but before the investment closes:
New Founder % = Current Shares ÷ (Current Fully Diluted + New Option Shares)
After the round closes:
Final Founder % = New Founder % × (Pre-Money Valuation ÷ Post-Money Valuation)
Even experienced founders make these errors when negotiating option pools. Avoid these pitfalls:
If investors demand a 25% pool at Series A but your hiring plan only requires 15%, you're giving away 10% of your company unnecessarily. The excess sits unused while investors retain their full ownership.
Solution: Create a detailed 18-24 month hiring plan with specific roles, seniority levels, and expected equity grants. Use this to justify a right-sized pool.
Most term sheets default to pre-money option pools. If you don't explicitly negotiate for post-money treatment, you'll accept the less favorable structure.
Solution: Model both scenarios and show investors the dilution difference. For founder-friendly investors, propose post-money pools or a hybrid approach.
That 20% pool at Series A will last 18-24 months. At Series B, you'll need another 10-15% refresh pool. Each refresh dilutes founders further.
Solution: Model dilution through Series C to understand your long-term ownership trajectory. Plan accordingly when negotiating early-round valuations.
A $10M pre-money valuation with a 20% pre-money option pool is really a $8M valuation to founders. The pool comes out of your ownership, not investors'.
Solution: Calculate your effective valuation: Pre-Money × (1 - Option Pool %). Negotiate valuation knowing this is what actually matters to founders.
Accepting a 20% pool because "that's market" without mapping it to actual hires means you might create a pool that's too large or too small.
Solution: Build a bottom-up hiring model. List every role you'll hire in the next 18-24 months, assign market-rate equity grants, sum the total, and add 10-15% buffer. This is your required pool.
Follow these guidelines to optimize your option pool strategy:
Investors can't argue with data. Build a spreadsheet showing:
Add 10-15% buffer for unexpected hires or retention grants. This becomes your target option pool size.
If you're raising $10M to last 24 months, your pool should match 24 months of hiring. If you're raising $10M to last 18 months before a quick Series B, argue for a smaller pool with a planned refresh at the next round.
Options granted earlier in your company's life are worth more to employees (lower strike price, more upside potential). Grant generously to your first 15-20 employees, then scale back as valuations rise.
Silicon Valley standard is four-year vesting with 25% vesting after year one (the cliff), then monthly vesting thereafter. This structure protects the company if employees leave early while still providing fair equity to those who stay.
Don't allocate 100% of your option pool to new hires. Reserve 20-30% for refresh grants to retain top performers whose initial grants have mostly vested.
The ICanPitch platform includes an interactive option pool calculator designed specifically for Silicon Valley startups. Here's how to use it effectively:
Enter your fully diluted share count, existing option pool size, and current founder ownership percentage. The calculator will establish your baseline.
Input your target raise amount, pre-money valuation, and investor-requested option pool size. The calculator instantly shows pre-money vs post-money scenarios.
Toggle between 15%, 18%, and 20% pool sizes to see exactly how each choice impacts founder ownership. Visualize the trade-offs before term sheet negotiation.
Use the built-in hiring plan template to document your equity grant strategy. Export this to share with investors during pool size negotiations.
Project your cap table through Series B and C to understand long-term dilution trajectories. Plan your pool strategy across multiple rounds, not just the current fundraise.
At incorporation, create a small pool of 5-8% for your first critical hires. You'll expand this pool when you raise institutional capital. Creating a large pool too early dilutes founders unnecessarily if those early hires don't materialize.
Absolutely. Pool size is negotiable like every other term sheet provision. Come prepared with a detailed hiring plan showing exactly why you need more or less than the investor's initial request. Data-driven founders win these negotiations.
Unused pool shares remain reserved but unissued. They dilute founders but benefit investors because investor ownership percentages are calculated on a fully diluted basis (assuming the entire pool is granted). This is why oversized pools favor investors.
Yes. If you'll hire a VP of Sales who requires 0.75% equity but your current pool only has 0.5% remaining, expand the pool before extending the offer. Otherwise, you'll dilute all shareholders to make the grant.
At Series B, investors typically expect a refresh pool of 10-15% to accommodate continued hiring. This means creating new option shares, which dilutes all existing shareholders proportionally (unless negotiated as a pre-money pool, which dilutes only founders).
Pool size is the total shares reserved for options. Grants outstanding are options already issued to employees. The difference is your remaining pool available for future hires. Track this closely—running out of pool mid-fundraise creates problems.
Option pool mechanics directly determine how much of your company you'll own after fundraising. Understanding pre-money vs post-money treatment, market standards by stage, and dilution mathematics puts you in control of these negotiations rather than accepting investor defaults.
The difference between a 15% and 20% pre-money option pool at Series A represents 3-5 percentage points of founder ownership—potentially worth millions at exit. Run the numbers before signing term sheets.
Ready to model your option pool scenarios? Use the ICanPitch Option Pool Calculator to calculate dilution, compare pre vs post-money structures, and build data-driven hiring plans that justify your pool size to investors. Get the clarity you need to negotiate effectively and retain maximum ownership through your fundraising journey.
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