Option pool sizing: why 10% is a question, not a rule

Build an equity reserve around a hiring plan, distinguish reserved shares from grants, and calculate dilution using the right denominator.

An option pool is a reserve for potential equity awards. It is not an automatic grant to employees, and “10%” is not a universal requirement. The useful question is how much equity the company expects to need before its next meaningful hiring or financing milestone.

Build the reserve from the hiring plan

List the roles you expect to fill, when you expect to hire and the proposed equity range for each role. Include likely refresh awards and a deliberate buffer rather than treating the full reserve as already committed. Have proposed grants benchmarked and reviewed for the company’s stage, jurisdiction and award type.

Existing grants and the remaining unallocated reserve are different quantities. A 10% total pool with most awards already committed may leave little room for new hires. Ask whether a proposed financing target refers to the entire pool or only the unallocated portion after closing.

The denominator changes the answer

Suppose founders hold 1,000,000 shares and there are no other shares, awards or converting instruments. Reserving 100,000 additional shares does not create a 10% fully diluted pool: 100,000 ÷ 1,100,000 is approximately 9.09%.

To target 10% under those simplified assumptions, solve P ÷ (1,000,000 + P) = 10%. The reserve is approximately 111,111 shares. Because shares must generally be recorded in whole numbers, the final percentage depends on the chosen rounding.

A real financing model must also account for existing awards, warrants, converting SAFEs or notes and new investor shares according to the agreed capitalization definitions. State whether your percentages are issued, fully diluted, pre-financing or post-financing.

Why a pre-money top-up matters

Financing terms may require a larger unallocated pool to be included in the pre-money capitalization. That increases the denominator used to price the new investment and can shift the economic cost of the increase toward existing holders. A pool added after the financing can have a different dilution allocation.

For a simple percentage illustration, a post-closing table of 70% founders, 20% new investor and 10% unallocated pool sums to 100%. It does not establish the right size or pricing; it makes the allocation visible. Compare the same financing with and without the proposed pool increase before accepting the term.

A reserve is not an approval

Reserving shares does not itself grant an option or give the recipient issued ownership. Individual awards need the applicable plan, approvals, grant documents and tax and securities analysis. Exercise, vesting and settlement are separate events, and options, RSUs and restricted stock should not be treated as interchangeable.

Before you agree to a pool

Confirm total versus unallocated pool size.
Specify whether the target is measured before or after financing.
Include all relevant convertible instruments in the model.
Separate board-approved grants from planned hires.
Check authorized share capacity and required approvals.

Use Notorio’s cap table to keep reserves and awards distinct. For conversion assumptions, see the SAFE conversion guide.