Option Pool

Key Highlights

• An option pool is a portion of a company’s shares reserved to offer employees, advisors, or consultants as part of their compensation - commonly used by startups to attract and retain talent.

• These shares come in forms like stock options or restricted stock units (RSUs), offering a piece of the company’s future success.

What is Option Pool?

An option pool is a portion of a company’s shares reserved to offer employees, advisors, or consultants as part of their compensation - commonly used by startups to attract and retain talent. These shares come in forms like stock options or restricted stock units (RSUs), offering a piece of the company’s future success.

Why it Matters?

Startups often can’t pay big salaries, so they use option pools to attract and keep talented people by giving them a chance to own part of the company.

Key Points

• Size: Usually 10–25% of the company’s total shares, depending on its stage and hiring needs.

• Dilution: Adding shares to the pool can reduce the ownership percentage of existing shareholders, like founders.

• Vesting: Shares are often earned over time (e.g., 4 years), encouraging people to stay and contribute.

• Management: The company’s board decides how the pool is set up and who gets shares.

How it Works?

The option pool appears on the company’s cap table, which is a detailed record of who owns what in the company. When options are given out and used, those shares go to the recipients, making them shareholders. Unused or canceled options go back to the pool for future use.