Option pool dilution is when a startup creates or expands an employee option pool before a funding round, which reduces existing shareholders' ownership percentages. Investors often require a 10–20% pre-money option pool at seed so the company can hire without immediately running another dilution event. Model the impact with Bowora's free dilution calculator.

Why investors ask for an option pool

Startups need to attract talent. Early employees usually accept below-market cash in exchange for equity. An option pool reserves shares for those future grants. Without a pool, every hire would require issuing new shares and diluting everyone again—messy for cap table math and investor expectations.

At seed, investors commonly target a pool sized for the next 12–18 months of hiring: often 10% at the low end, 15–20% at the high end, depending on how aggressive the hiring plan is and how much of the team is already in place.

Pre-money vs post-money pool: who gets diluted?

The critical negotiation detail is when the pool is created relative to the new money.

• Pre-money pool top-up: New pool shares are issued before the round closes. Founders and existing investors absorb that dilution. The new investor's agreed ownership percentage is protected.
• Post-money pool (less common in seed): The pool is sized after the investor buys in, so everyone—including the new investor—shares the dilution.

Most seed and Series A term sheets in the US use the pre-money shuffle. That is why founders sometimes feel "double diluted": pool first, then the round. Our dilution guide walks through a full seed and Series A example.

Worked example: 15% pre-money pool at seed

Imagine two founders own 100% before any pool or investment. Investors require a 15% option pool pre-money, then invest $200K at a $2M pre-money valuation.

1. Pool top-up: founders drop from 100% to 85% (option pool = 15%).
2. Round closes: post-money = $2.2M. New investor owns roughly 9.1% ($200K ÷ $2.2M).
3. Founders end around 77% combined, pool stays 15%, seed investor ~9%, earlier investors 0% in this simple case.

Exact percentages depend on whether the pool is net-new or a top-up from an existing pool. Plug your numbers into the cap table calculator instead of guessing.

How to negotiate pool size without losing the round

Investors are not being arbitrary—they want enough equity reserved to execute the plan you pitched. Founders can still push back with data:

• Show a hiring plan tied to specific roles and start dates, not a generic 20% ask.
• Separate "pool we need now" from "pool we might need at Series A."
• Ask whether unallocated pool can roll forward instead of resetting every round.
• Compare dilution in dollar value, not just percentage—especially if valuation stepped up.

For stage context, see what is seed funding and what is Series A funding.

Model your pool before you sign

Option pool math is easier to see than to explain in a spreadsheet cell. Use the Bowora dilution calculator to enter your pre-money valuation, investment, and pool top-up, then read founder and investor ownership side by side. Free, no login, no data stored.