Employee Stock Ownership Plan (ESOP)
A program that gives employees ownership in the company, usually through a stock option pool.
Definition
In startup context, ESOP commonly refers to the employee option pool, a block of shares reserved for granting stock options or RSUs to employees. Technically, an ESOP is a specific legal structure (a retirement plan that invests in company stock), but in startup parlance it is used loosely to describe any equity compensation program for employees.
Why it matters
The ESOP or option pool is where your stock options come from. The size of the pool (typically 10-20% of shares) and how it is allocated determines how much equity employees can receive.
Example
A company creates a 15% option pool at its Series A, representing 1.5M shares. The first 20 employees receive grants from this pool. Once it runs low, the board may expand it, which dilutes all existing shareholders.