Business Terms Glossary
Option Pool
Definition of Option Pool
Option Pool is the number of shares set aside for future issuance to employees of a private company.
In a venture funding round, VC firms will often require that the funded company establish an options pool for employees. This ensures that the funded company can attract and retain top talent.
Creating an option pool will typically have a dilutive effect on other shareholders. For example, if a founder owns 100% of a company and it has a pre-money valuation of $3 million, the founder's shares valuation will be diluted down to $2.4 million if 20% of the company is allocated to employee stock options. Needless to say, venture capitalists have clever ways of ensuring that option pool allocations dilute founders, rather than diluting the VC firm's position.
Remember that having an options pool does not mean the stock has been issued. It simply means the stock is available to be granted to employees, and it may then be subject to a vesting schedule.
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