Fundraising and dilution
Option pool calculator
When investors ask for a bigger option pool "in the pre-money", the headline valuation stays the same but the founders pay for the pool. This shows how much.
Assumes the whole top-up is created before the round (the usual US term) and that the existing unallocated pool counts towards the target.
How it works
Investors usually want a pool large enough for the hires planned until the next round, often 10% to 15% of the post-money company. If the pool is created before their money arrives, it dilutes only the existing holders.
The effect is the same as a lower pre-money valuation. The effective pre-money is the headline pre-money minus the value of the new pool shares.
The formula
- Investor stakeAmount raised / (pre-money + amount raised).
- Top-up neededTarget pool after the round - existing pool x (1 - investor stake).
- Effective pre-moneyHeadline pre-money - top-up x post-money.
Worked example
A $10 million pre-money, a $2.5 million raise and a 15% pool target with 5% unallocated today: the existing pool is worth 4% after the round, so the top-up is 11% of the post-money, or $1.375 million. The effective pre-money is $8.625 million.
Put the numbers in your data room
Investors will ask for a hiring plan that justifies the pool size. Put it in the data room next to the option plan and the grant ledger; a credible plan is the best argument for a smaller pool.
Option pool calculator FAQ
What is the option pool shuffle?
Creating or enlarging the option pool before a round so that only existing holders are diluted by it, which lowers the effective pre-money.
How big should the pool be?
Large enough for the hires until the next round. A bottom-up hiring plan usually gives a smaller and better supported number than a flat percentage.
Can the pool be created post-money?
It can be negotiated, but most US venture term sheets ask for a pre-money pool.