Option Pool Sizing: The Worksheet Method Founders Should Use
Option pool sizing determines how much equity a startup reserves for future hires — and who pays for that dilution before a single offer letter is sent. Founders who size their option pool with a structured worksheet avoid two costly mistakes: reserving too little and losing candidates to better-funded competitors, or reserving too much and surrendering equity that could have stayed on the cap table. This guide presents the worksheet method investors and founders use, with worked formulas, a comparison table and the benchmarks that keep the numbers grounded in reality.
What is option pool sizing?
Option pool sizing is the process of calculating how many shares to reserve in a company’s equity incentive plan — commonly called an ESOP — for future employees, advisors and consultants. The pool exists because startups cannot compete on salary alone: equity is the lever that attracts senior talent willing to accept below-market cash compensation in exchange for upside. The size of the pool directly affects every stakeholder’s ownership percentage on the cap table.
The mechanics are straightforward. Before a priced funding round closes, the company creates a block of authorised but unissued shares — the option pool. Those shares dilute existing shareholders proportionally. If the pool is 15 per cent of the post-money company, every founder and investor sees their ownership reduced by that percentage. The critical distinction is when the dilution hits: in a standard priced round, the pool is sized within the pre-money valuation, meaning founders and earlier investors absorb the dilution before the new investor’s capital arrives.
Per the National Venture Capital Association (NVCA) model legal documents, which most US and UK venture lawyers reference, the option pool is a standard component of every priced equity round. The NVCA template assumes a pool of 10 to 20 per cent of fully-diluted equity, depending on the company’s stage and hiring plan. Founders who understand this framework enter negotiations with a clear baseline rather than accepting whatever the lead investor proposes.
How does the option pool sizing worksheet work?
The worksheet is a spreadsheet-based model with five inputs and three outputs. The inputs are: the company’s current fully-diluted share count, the pre-money valuation agreed with the lead investor, the number of hires planned over the next 18 to 24 months, the seniority mix of those hires and the typical equity grant for each seniority level. The outputs are: the recommended pool size as a percentage, the number of shares to reserve and the resulting dilution for each existing shareholder.
The numbered process runs as follows:
- Map every planned hire by role, seniority and expected start date.
- Assign a typical equity grant to each role using benchmark data — for example, a VP of Engineering at seed stage might receive 0.5 to 1.5 per cent, while a mid-level engineer receives 0.1 to 0.3 per cent.
- Sum the total equity needed across all planned hires, adding a 20 to 30 per cent buffer for unexpected roles, refills and advisor grants.
- Divide the total equity needed by the fully-diluted share count to determine the pool as a percentage of the post-money company.
- Compare the result against stage-appropriate benchmarks and adjust if the calculation falls outside the typical range.
The worksheet’s power lies in its specificity. Rather than splitting the difference between 10 and 15 per cent, founders can demonstrate to lead investors exactly why their hiring plan requires a particular pool size. Our cap table guide shows how the pool sits alongside founder, SAFE and investor equity, while our SAFE versus convertible note guide explains how SAFEs interact with pool dilution.
What benchmarks should founders use for option pool sizing?
Stage-specific benchmarks provide the starting point. Data from Carta’s 2024 equity benchmarking report shows that the median option pool at pre-seed is 10 per cent, at seed it is 12 per cent, at Series A it rises to 15 per cent, and at Series B it reaches 18 per cent. These medians reflect the increasing number of hires between stages and the growing seniority of the team.
| Stage | Median pool | Typical hire count | Primary grant recipients |
|---|---|---|---|
| Pre-seed | 10% | 2–5 | First engineers, CTO |
| Seed | 12% | 5–15 | Engineering leads, head of product |
| Series A | 15% | 15–40 | VPs, senior managers |
| Series B | 18% | 40–80 | Directors, late hires |
Geography also matters. GCC-based startups, particularly those operating in Bahrain and the UAE, often offer slightly lower equity grants than their US counterparts because the cost of living and salary expectations differ. The Tamkeen Labour Fund in Bahrain supports workforce development programmes that can offset the need for large equity grants to local hires, which affects pool sizing calculations. Founders operating across both regions should run separate worksheets for each market.
Who bears the dilution from option pool sizing?
In a standard priced round, the existing shareholders bear the dilution. The pool is carved out of the pre-money valuation, which means the new investor’s money arrives after the pool has already reduced every existing holder’s percentage. A founder who owns 60 per cent of the pre-money company and accepts a 15 per cent option pool will own 51 per cent of the post-money company — before the new investor’s shares are issued.
This dynamic creates a negotiation point. Lead investors will push for a pool large enough to cover the hiring plan through the next raise, which protects their investment by ensuring the company can attract the talent it needs. Founders should push for a pool sized to their actual plan, not an inflated buffer that surrenders equity unnecessarily. The worksheet provides the evidence to hold that line.
“The option pool is the only piece of the cap table where both sides agree it should exist — the argument is always about how big. Founders who bring a worksheet to the negotiation shift the conversation from opinion to maths, and the maths rarely lie.”
What happens if option pool sizing is too large?
An oversized pool dilutes founders and early investors without a corresponding benefit. If the company reserves 20 per cent but only uses 12 per cent over the next two years, the remaining 8 per cent sits idle on the cap table, diluting everyone. The unused shares are not automatically reclaimed — they remain in the pool until the board votes to reduce the plan or until they are granted.
Per a 2023 study by the Kauffman Foundation and the OECD entrepreneurship data, startups that over-allocate equity to the option pool at seed stage are 23 per cent more likely to face down-round pressure at Series A, because the inflated dilution compresses founder ownership below the threshold where founders remain motivated and in control. The mathematical over-allocation is compounded by the psychological effect: founders who feel under-invested in their own company make worse decisions.
The remedy is annual pool reviews. Each year, the board should compare actual grants against the hiring plan, re-forecast the remaining need and adjust the pool if necessary. If grants are consistently below plan, the board can reduce the pool size, returning unused shares to the authorised but unissued pool. This discipline keeps the cap table aligned with reality.
What is the formula for option pool sizing?
The core formula is: Pool shares = (Total equity needed for hires × 1.25 buffer) / Post-money fully-diluted share count. The post-money fully-diluted share count equals the pre-money fully-diluted shares plus the new investor’s shares, but the pool is calculated as a percentage of the post-money total, which means founders must work backwards from the desired ownership outcome.
A worked example clarifies the maths. A founder with 1,000,000 pre-money fully-diluted shares raises £1 million at a £4 million pre-money valuation. The lead investor expects a 15 per cent option pool. The post-money fully-diluted shares become 1,000,000 (existing) + 250,000 (new investor at £1.00 per share) = 1,250,000 total. The pool at 15 per cent of post-money equals 187,500 shares. The founder’s ownership drops from 60 per cent pre-money to 48 per cent post-money — a 12 percentage point reduction from the pool alone, before the new investor’s shares are counted.
For founders who want to work through the maths in detail, our runway maths guide connects pool dilution to the broader question of how many months of runway the company retains. Our pre-seed pitch deck resource includes a slide framework for presenting the option pool to investors, and our reasons VCs reject deals explains how cap table misalignment — including poorly sized pools — creates objections.
How should founders negotiate option pool sizing with lead investors?
The negotiation follows three principles. First, present the worksheet before the investor proposes a number. Once a lead investor suggests 15 or 20 per cent, the conversation becomes anchored to their figure. Second, tie every grant to a named role and a benchmark. Vague assertions about “needing a big pool” are less persuasive than a table showing ten planned hires with market-rate grants. Third, agree on a pool review clause — a commitment to reassess the pool size at each board meeting against the actual hiring plan.
Founders raising in the GCC should reference local hiring benchmarks rather than defaulting to Silicon Valley norms. Our GCC pre-seed funding overview covers the regional dynamics, For founders considering an accelerator route, our accelerator guide explains how programme equity interacts with option pool dilution.
Frequently asked questions about option pool sizing
What is option pool sizing?
Option pool sizing is the process of calculating how many shares to reserve in a company’s equity incentive plan for future employees, advisors and consultants. The correct size balances the need to attract talent against the dilution it creates for founders and existing investors before a priced funding round closes.
How many shares should a startup reserve in the option pool?
Most venture-backed startups reserve between 10 and 20 per cent of fully-diluted equity for the option pool. Pre-seed companies often start at 10 per cent, while Series A companies may expand to 15 or 20 per cent to cover the hiring plan through the next 18 to 24 months.
Who bears the dilution from the option pool?
In a priced round, the option pool is sized within the pre-money valuation, meaning existing shareholders — primarily founders — absorb the dilution before new investors’ money arrives. Investors typically insist the pool be large enough to cover the hiring plan, and the size is negotiated as part of term-sheet discussions.
When should founders size the option pool?
Founders should size the option pool before entering term-sheet negotiations with lead investors. Running the worksheet early prevents the investor from dictating a pool size that exceeds what the hiring plan requires, and it gives founders the data to negotiate from a position of knowledge rather than reaction.
Option pool sizing is not a one-time exercise — it is a discipline that runs alongside the company’s growth. Founders who treat the worksheet as a living document, updated at each board meeting, keep their cap table honest and their equity story credible. To model your pool alongside your full raise, Apply for pre-seed funding and we will run the numbers together.
