October 26, 2026
Investors usually require the company to set aside an unallocated option pool before a priced round and count it in the pre-money valuation. That quietly lowers the price your existing shares get, because the cost of the pool falls on the current holders, not the new investors. The fix is a real hiring plan: size the pool to the grants you'll actually make before the next round, and push for anything beyond that to come out of the post-money.
Key takeaways
Investors want the company to have enough equity set aside to hire the team their money is paying for. If the pool runs out a year after the round, the company has to add shares, and that dilutes the investors too. So the term sheet sets a pool size the company must have when the round closes, and it usually puts the cost of creating that pool on the people who owned the company before the round. See Employee Option Pool.
The term sheet usually describes the pool inside the valuation, in language like this: "a pre-money valuation of $8,000,000, which includes an unallocated option pool equal to 15% of the post-money fully diluted capitalization."
Example. An investor puts in $2,000,000 at an $8,000,000 pre-money valuation, so the post-money valuation is $10,000,000. The pool must equal 15% of the post-money company, or $1,500,000 at the deal price. Because the pool is created as part of the pre-money, it comes out of the $8,000,000. Your existing shares are really being valued at $6,500,000, not $8,000,000.
If the pool were sized at 10% instead, it would be worth $1,000,000, and your existing shares would be valued at $7,000,000. That $500,000 difference comes entirely out of the founders and earlier holders. That's why a smaller pool can be worth more to you than a higher headline valuation. See Equity Dilution.
Side by side, assuming the company has no unallocated pool before the round:
| 15% pool | 10% pool | |
|---|---|---|
| Headline pre-money valuation | $8,000,000 | $8,000,000 |
| New investment | $2,000,000 | $2,000,000 |
| Pool value at the deal price | $1,500,000 | $1,000,000 |
| Effective pre-money for existing shares | $6,500,000 | $7,000,000 |
| Existing holders' ownership after the round | 65% | 70% |
| New investors' ownership after the round | 20% | 20% |
Unallocated shares already in your pool count toward the target, so you'll need to add less at the round. But a big pool at incorporation doesn't avoid the dilution. It just moves it earlier.
There's no right percentage, only a right plan. At seed and Series A, expect a post-money pool of 10%, 15% or 20%, depending on how much hiring the plan calls for: about 10% for a lean team, 15% for a typical build-out, and up to 20% if you're about to hire several senior executives. Later rounds typically need smaller top-ups, because the company has more value per share and later hires get smaller grants.
What actually settles the number is the hiring plan. Build a hire-by-hire option budget through the next round, typically 12 to 18 months: each role, when you'll hire it, and the grant size for that role. Add it up, add a modest cushion, and propose that total as the pool. Investors can test a plan. They can't test a round number.
If you've raised on post-money SAFEs, the pool affects them too. Under the Y Combinator post-money SAFE, the SAFE's conversion math counts the existing unallocated pool, but generally leaves out any pool increase made as part of the priced round. The SAFE holders' shares are calculated first, and the pool increase is then added to the pre-money capitalization, diluting everyone who held shares before the new money came in. So the converted SAFE holders share the cost of the top-up with the founders, and the new investors don't share it at all if it sits in the pre-money. Model the whole conversion, SAFEs and pool together, before you agree to a pool size. See SAFE and Valuation Cap.
It can help a little if the pool is bigger than your hiring plan. The post-money SAFE gives SAFE holders shares on the unissued pool that exists just before the round, but not on the increase the new lead requires in the round. So reserved shares you won't grant before the round are shares the SAFE holders convert on, even though the lead will rebuild the pool to its target anyway. If you cancel the unneeded part of the reserve first, those shares come back as part of the round's increase, which the SAFE holders share with the founders.
Example. A company with our default setup has 10,000,000 authorized shares, 8,000,000 founder shares and a 1,000,000-share pool, of which 200,000 shares are granted and 100,000 are promised. It has $1,500,000 of post-money SAFEs at a $12,000,000 cap and raises $4,000,000 at a $16,000,000 pre-money valuation with a 15% post-money pool. Keeping the full pool, the founders finish at 56.0% and the SAFE holders at 9.0%. Cancelling 500,000 of the unoffered shares before the term sheet takes the founders to about 56.4% and the SAFE holders to about 8.6%. The step-by-step math is in How Do SAFEs Convert in a Priced Round?
That's a gain of less than half a point, so treat it as part of planning the round, not as a strategy. It only matters for SAFEs that convert at their cap, and it does nothing in a round priced below the cap. It doesn't change what the lead will require, either. You still negotiate the post-money pool from your hiring plan, as described above.
If you do it, do it early and in the open. Keep every share you've granted or promised: the SAFE adds back any increase needed to cover promised options beyond the old pool, so cutting into them gains nothing. Make the decision before the term sheet, not on the eve of closing. A cut timed to the closing and refilled by the increase can look to your SAFE holders like gaming the conversion, and a fraction of a point isn't worth that goodwill. Reducing the plan's share reserve is usually a board action, so get board approval, check your equity plan's amendment clause and any investor agreements for other consents, and tell the lead.
Negotiate the pool and the valuation together, because they're the same number. Three levers matter.
Pool size. Anchor the discussion to your hiring plan, not to what the investor's last deal used.
Pre-money or post-money. Ask for any increase beyond your hiring plan to come out of the post-money, so the new investors share that dilution. You won't always get it, but a lead who wants a bigger pool than the plan supports should be willing to share its cost.
Existing shares. Make sure the pool calculation counts unallocated shares you already have and any promised grants you've already approved, so you're not paying twice.
Don't trade other terms to shrink the pool. Longer vesting for employees, for example, doesn't reduce the pool investors need and makes hiring harder.
Mostly not. The term sheet and charter set the size of the pool and confirm the company has an equity plan. Individual grant terms, such as vesting and acceleration, stay in the plan and each grant, though investors usually expect four-year vesting with a one-year cliff and board approval of every grant. See Vesting Schedule.
Investors may also ask about founder vesting. If your founder shares are already vesting, that usually ends the discussion. If they aren't, expect a request to add vesting, and ask for credit for the time you've already put in.
Go deeper: For a full walkthrough, see our Founder Guide to Seed Funding and Founder Guide to Series A.
If you'd like help negotiating a term sheet, see our Series Seed services or contact us.
