The Option Pool Shuffle: Who Actually Pays for the New Pool
Almost every term sheet asks for a new option pool, and almost none explain the option pool shuffle hiding inside the request. The pool is quoted as a percentage of the company after the round, then carved out of the shares that exist before it. The new investor's stake is unaffected. Yours is not, and the gap between those two facts is worth real points of ownership.
Who actually pays for the option pool in a funding round?
The founders do, almost always. A new pool is sized as a percentage of the company after the round but carved out of the pre-money share count, so it dilutes existing holders while leaving the incoming investor's percentage untouched. That asymmetry is the negotiation.
- A 10% post-money pool on an $8M pre-money round costs founders roughly eight points, not ten.
- Moving the pool into the post-money base shifts part of the cost onto the new investor.
- Only promised hires need to be in the pool; sizing for a wish list is paying for it early.
Working the numbers
Take a $2M round at an $8M pre-money valuation with a 10% post-money pool. The investor takes 20% of the post-money company. The pool takes 10%. What is left — 70% — is split across everyone already on the register. A founder who held 100% beforehand now holds 70%, not the 80% a naive reading of the round would suggest. The pool cost eight points, and the investor paid for none of them.
Run the same round with the pool sized into the post-money base and the arithmetic changes materially. The founder dilution calculator models both versions side by side, which is the fastest way to see what the concession is worth before you concede it.
What to negotiate, and what to concede
The defensible position is a pool sized to a written hiring plan for the next twelve to eighteen months, not to a round number from an investor's template. If you are asked for 15% and the plan needs 8%, the difference is not a rounding error — it is equity handed to hires you have not decided to make.
It also helps to know what the grants coming out of that pool are worth to the people receiving them. The startup equity offer calculator turns a grant into an ownership percentage and a payout range, which makes the sizing conversation concrete rather than theoretical. Lovie keeps the pool, the promised grants and the resulting dilution in one place, so the plan and the cap table stop disagreeing.
For the standard drafting this sits on top of, see the NVCA's model financing documents.