Cap table & dilution
Option pool shuffle
Also called Pool top-up, Pre-money pool
The practice of creating or enlarging an employee option pool inside the pre-money valuation, so that the dilution falls on existing shareholders rather than on the incoming investor.
In plain English
Every round asks the same question about the option pool: how many shares should be reserved for future employees, and whose ownership do those shares come out of? Placing the new pool inside the pre-money share count means existing holders are diluted and the incoming investor is not. Placing it after closing means everyone shares the cost.
The pre-money placement is the market convention in most venture rounds, and it is not a trick — it reflects a real argument. The new investor is paying for the company as it will be, including the team it must hire to execute the plan the valuation assumes. If those hires need equity, the cost of them belongs in the price.
What makes it contentious is the size. A lead asking for a 15% post-closing pool when the company's actual hiring plan needs 8% has reduced the effective pre-money valuation by several percentage points without changing the headline. The negotiation is about the size of the pool much more than about where it sits.
The honest way to settle it is with a hiring plan: list the roles to be filled before the next round, the equity each will need, and total it. A pool sized from that document is defensible. A pool sized from a rule of thumb is a valuation negotiation conducted in a different vocabulary.
What it means for your cheque
As a small cheque you are almost always on the investor side of this, which means the shuffle works in your favour — you are in the round, and the pool comes out of the founders. What you should care about is whether the total is sane, because an over-diluted founding team is a risk to your investment that no term protects you against.
The exception is when you invested in an earlier round. Then you are on the diluted side, and a large pre-money pool at the next round is a direct transfer from you to the new investor. This is one of the concrete benefits of pro-rata rights: participating in the round puts you on the right side of the arithmetic.
Do the arithmetic
A 15% pool versus a 10% pool at the same headline valuation
A company raises $2m at an $8m pre-money. The only variable is the size of the new option pool, created pre-money in both cases.
| 15% post-closing pool — effective pre-money | about $6.5m |
|---|---|
| 15% pool — founders and prior holders after the round | 65% |
| 10% post-closing pool — effective pre-money | about $7.0m |
| 10% pool — founders and prior holders after the round | 70% |
| Difference to the founders | 5 percentage points, worth $25m on a $500m exit |
| Difference to the new investor | none — 20% either way |
The headline valuation did not move at all and five points of the company changed hands. This is why the pool is negotiated as hard as the price by anyone who has done it before.
At the table
What to negotiate
- Ask for the hiring plan the pool is sized against — roles, seniority, expected grants, timeline to the next round.
- Push for the smallest pool that covers hiring until the next round. Pools can be topped up; unissued options are pure dilution.
- Count the unissued portion of any existing pool before agreeing a top-up. Companies frequently ask for a new pool while sitting on unused shares.
- If you invested earlier, participating in the new round is the practical way to offset pre-money pool dilution.
- Watch for a pool created pre-money and then only half issued — the unissued remainder should ideally return to all shareholders, though in practice it rarely does.
Option pool shuffle: common questions
Is the option pool shuffle a trick?
What size pool is normal at seed?
Does the unissued pool count in my ownership percentage?
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