Equity, Ownership & Dilution Beginner

Option Pool

A block of shares reserved for granting stock options and RSUs to employees.

Definition

The option pool is a set of shares set aside by the company to grant as equity compensation to employees, advisors, and consultants. It typically represents 10-20% of the fully diluted shares. The pool is usually created or expanded at each funding round, and its creation comes out of the founders' and existing shareholders' ownership (not the new investors' stake).

Why it matters

Your options come from this pool. If the pool runs low and gets expanded, everyone else gets diluted. If it is too small, the company may not be able to attract top talent with competitive grants.

Example

At Series A, the board creates a 15% option pool (1.5M shares out of 10M total). The VP of Engineering gets 150,000 options (1.5%), and early engineers get 30,000-50,000 options each (0.3-0.5%).

Related terms

Stock Options
The right to buy company shares at a fixed price (strike price), granted as compensation.
Cap Table
A spreadsheet tracking every shareholder, their share counts, and ownership percentages.
Dilution
The reduction in your ownership percentage when a company issues new shares.
Fully Diluted Shares
The total share count including all issued shares, options, RSUs, and convertible instruments.
Employee Stock Ownership Plan (ESOP)
A program that gives employees ownership in the company, usually through a stock option pool.
Refresh Grant
Additional equity granted to existing employees, usually annually, to maintain retention incentives.

More from Equity, Ownership & Dilution

This definition is an educational summary. It is not legal, tax, or investment advice. Specific terms in your equity grant or company documents may differ.