Cap tables and equity
Option pools
Reserved equity for hiring — size it from a plan, watch the pre-money shuffle, and refresh before the tank is empty.
The option pool is a block of authorized shares reserved for employees, advisors and sometimes consultants. It is how startups pay for talent when cash is scarce. It is also one of the most misunderstood levers in a priced round: investors often insist the pool be topped up before their money comes in, which dilutes founders and earlier holders, not the new preferred.
One sentence: a larger pool helps hiring, and carving it from the pre-money transfers ownership from common holders to future employees (and sweetens the deal for the incoming investor).
The pool appears on the cap table as reserved shares even when unissued. Fully diluted ownership already assumes those shares will exist. Granting options moves shares from "available" to "outstanding"; FD total stays the same until you expand the pool.
Create the pool at incorporation and the 10% comes entirely from founder opportunity — there are no investors yet. Expand it in a priced round and the shuffle usually makes founders pay.
When a company says your grant is "0.40% fully diluted," that percentage already divides by a denominator that includes the unissued pool. What dilutes you next is new financings, pool expansions beyond today's reserve, and convertibles not yet in the number you were quoted.
Concepts in this section
| Step | Concept | What it answers |
|---|---|---|
| 1 | Sizing an option pool | How large should the reserve be, and what do roles get? |
| 2 | The option pool shuffle | Why a 15% post-money pool is a stealth valuation cut. |
| 3 | Option pool refreshes | When do you top up again, and what does "10% after close" mean? |
Founders: build the hiring-plan spreadsheet before the term sheet. Counter a 15% ask with names and roles. Hiring managers: know available pool before you promise 0.5%. Employees: ask what % of FD your grant is and how large the unissued pool is.
Common mistakes
- Agreeing to 15% post-money pool with no model.
- Granting above the reserve.
- Promising % without knowing the fully diluted denominator.
- Hoping attrition funds the next VP.
- Paying advisors like co-founders.
Key takeaways
- Unissued pool still counts in fully diluted ownership.
- Size from a hiring plan plus buffer.
- Post-money pool requirements usually mean pre-money dilution for founders.
- Refreshes repeat; cancellations recycle grants into available.
- Unused pool is not free — it is prepaid dilution.
Further learning
The Holloway Guide to Equity CompensationStock options, RSUs, job offers, and taxes—a detailed reference, including hundreds of resources, explained from the ground up, for both employees and managers.Holloway
Related
Priced rounds
Preferred stock at a negotiated price — pre- and post-money, share math, the pool shuffle and the closing binder.
Employee equity
Options vs RSUs, strike prices and 409A, vesting and exercise windows, and how to evaluate a startup offer with ownership math.
Hiring and early teams
First hires, compensation bands, equity grants by role, and culture.