What Is An Option Pool?

Written January 10, 2017

An option pool is an amount of a startup’s common stock reserved to issue in the future to employees, directors, advisors, and consultants.

Via a written plan, a startup pre-authorizes a certain amount of the company’s common stock which will be issued by the plan’s administrator (usually the startup’s board of directors or a committee selected by the board). For example, if the startup has 5 million shares of common stock outstanding, it may elect to authorize 1 million shares to be issued pursuant to the plan.

Keep in mind that a startup’s original option pool will likely not be the last option pool the startup creates. The size of the option pool is typically negotiated at each round of financing, since at that time, the startup will likely need additional equity options to attract and motivate future hires.