ESOP at Pre-Seed: How Big Should Your Option Pool Be?

Set your option pool at 10-15% of the fully diluted share capital before the pre-seed round closes; that is the working norm in the GCC and globally, and investors will expect the pool to sit inside your pre-money valuation. Size it from your hiring plan, document it as a real ESOP, and fix the percentage in the term sheet before any shares change hands.

Founders treat the option pool as an afterthought until a term sheet arrives. It does not need to be: once you understand why it exists, how it dilutes the cap table and how vesting works, you can settle it in one meeting and keep more of your company.

If you are still shaping the round, our guide to pre-seed funding in the GCC covers valuation and investor expectations. This article answers the sharper question: how big should the pool be, and should you set it up before or after the round?

Option Pool: The Short Answer

A pre-seed option pool of 10-15% of the fully diluted capital is the right starting point for most Gulf startups. Two or three planned hires plus an advisor or two: aim for 10-12%. Four or more hires before the next round, or a senior hire expected to run a function: push toward 15%. Pools above 20% are a red flag at this stage, and anything below 8% will look tight to investors.

The pool is created before the round closes and is counted inside the pre-money valuation, which means the cost of the pool is effectively borne by the founders’ own shareholding rather than by the incoming investor. In exchange, founders get a standard, investable structure and a team that is genuinely motivated to stay and build.

What Is an ESOP Option Pool?

An ESOP, or employee share option programme, is the formal machinery that turns “we will give the team equity” into a documented, legally workable scheme. The pool is a defined percentage of the company’s share capital, reserved for future grants. An option is the right, but not the obligation, to buy a fixed number of shares at a fixed strike price, usually the par value of the shares at the time of the grant.

The core documents are an ESOP rules document (sometimes called an option plan), a share option agreement for each grantee, and a share register that records every grant, vest and exercise. The board approves the pool and each grant. Employees typically pay the strike price only when they exercise, and they exercise at a sale, listing or other liquidity event.

Why structure rather than hand out shares directly? An option that has not vested is not owned. That gives the company a clean way to recruit, reward and part with people without permanently reshaping the cap table. HM Revenue & Customs publishes useful guidance on employee share schemes in the UK, and the same mechanics of grant, vest and exercise are the skeleton for schemes across the Gulf.

How Big Should Your Pre-Seed Option Pool Be?

Size the pool from your hiring plan, not from a template. Count the people you must add before the next round: engineers, a product person, a go-to-market hire, plus the consultants and advisors who will carry influence without joining the payroll. Each of those people will expect equity as part of their package, and the most senior of them will expect the most.

Rules of thumb that hold across the Gulf:

• Two to three hires, mostly junior to mid-level: a 10-12% pool.
• Four or more hires, or any VP-level appointment: 13-15%.
• Advisors and part-time consultants: 0.25-1% each, granted from the same pool.
• Future refresh: leave headroom for a founder-level hire’s re-grant.

Investors benchmark the pool against stage, sector and plan: a 25% pool at pre-seed reads as over-generous, a 7% pool as optimism that the next 18 months require nobody. Either way you will defend the number. If you are weighing accelerator capital first, our accelerator equity benchmark guide covers the trade-off.

Why Investors Ask for the Option Pool Pre-Money

Here is the dilution maths investors care about. Suppose the pre-money valuation is $3 million and you are raising $750,000. Post-money, the company is worth $3.75 million and the investor takes 20%. Add a 15% option pool created before the round and it sits inside the pre-money: investor 20%, pool 15%, founders 65%. Created after the round, the pool dilutes everyone pro-rata and the investor’s stake falls to 17%.

The second row looks like good news for founders, but it is not: investors price the pre-money assuming the pool will exist, so an absent pool means a discounted valuation or a larger pool demanded later. That is why term sheets state the pool percentage and require approval before closing, and why founders should never “save” the pool as a surprise. Our after-signing-term-sheet guide explains what happens once that document lands.

Option Pool Practice in Bahrain, Saudi and the UAE

GCC company law is friendly to option schemes, but practice differs enough that local counsel matters. In the UAE, free-zone companies in DIFC and ADGM sit under common-law frameworks that mirror familiar global schemes, while mainland and other free-zone entities typically document schemes under the Commercial Companies Law. Individual shareholders are generally not taxed on capital gains, which makes options unusually attractive to employees. Watch the 9% corporate tax regime and how grants are treated for tax. The UAE’s official portal, u.ae, is the place to start on current rules.

In Saudi Arabia, the Companies Law permits share-based incentive programmes, and regulators have moved toward a more flexible share regime in support of Vision 2030. Options are common in Riyadh’s fintech and enterprise scene, though Saudisation and labour rules shape who you hire, and therefore how the pool is consumed. Government services are documented on my.gov.sa.

In Bahrain, the low cost base and clear company law make ESOP setup fast and inexpensive, part of why Valu.vc’s hub is based there. Whichever jurisdiction you choose, three things hold everywhere: the scheme must be written down, the board must approve each grant, and the share register must stay current from the first grant.

Vesting: Cliffs, Schedules and Expiry

A pool is only as good as its vesting. The standard structure is four years of monthly vesting with a one-year cliff: a hire who leaves in year one leaves with nothing, and a mid-year departure costs only what has been earned. Advisors commonly get two-year vesting with a shorter cliff, and founders usually vest over four years with the same one-year cliff to keep the team aligned.

Two details decide whether the pool survives contact with real people. First, the exercise window: most schemes give leavers 90 days to exercise vested options before forfeiture. Second, recycling: forfeited or lapsed options return to the pool, which is how a 12% pool stretches across several hiring rounds.

Finally, remember that equity does not replace salary. Early hires should receive a fair cash package and options; the two serve different purposes. Our tech salary benchmarks for the Gulf show what competitive cash looks like, so your equity offer lands as a bonus rather than a substitute.

Before or After the Round: An Action Plan

Set the pool up before the round, for three reasons. Investors expect it: every term sheet states a pool percentage to be approved at or before closing. It is cheaper for you: created pre-money, the dilution falls inside the valuation investors have already accepted. And it is cleaner for hiring: when a candidate asks about equity, the scheme is ready, not promised.

Creating the pool after the round is possible, but only with investor consent, which is why it rarely happens at pre-seed; the exception is a specific grant negotiated with the board and priced into the cap table. Recap: $3 million pre-money, $750,000 raised, a 15% pool inside the pre-money leaves the investor at 20%, the pool at 15% and the founders at 65%: a standard, investable outcome.

Keep the option programme and the ordinary accounting in one place: our startup accounting checklist covers the register, and a dedicated business bank account in the Gulf keeps option cash and payroll cleanly separated.

An option pool is not a tax on founders; it is the price of a motivated team and an investable cap table. Size it from the plan, vest it sensibly and create it before the round, and the investor conversation becomes a formality.

Author: Mustafa Hasan, Founding Partner at Valu.vc. Updated: 3 August 2026.