Fundraising · Lesson 3 · 15 min
Sizing your ESOP pool
Why investors ask for the option pool before the money — the "pool shuffle" that quietly dilutes only the founders — and how to size a pool that hires your first team without giving away more than you need to.
What an option pool actually is
An ESOP pool is a block of shares set aside to grant to employees you haven’t hired yet. It isn’t given to anyone on day one — it’s reserved. But because it sits on the fully-diluted cap table, every percentage you reserve is a percentage you and your existing holders no longer own.
A typical seed-stage pool lands around 10–15% of the company, fully diluted. Bigger isn’t safer: an oversized pool is ownership you give away today for hires you may not make for a year.
The pool shuffle — who really pays
Here’s the part founders miss. Investors almost always require the pool to be created pre-money — before their cheque lands. The pool is counted in the pre-money valuation, so the price per share drops, and the entire pool dilutes the existing holders, not the new investor.
That’s why a “₹8 crore pre-money” with a 10% pool is not the same deal as one without. The pool comes out of your slice. Knowing this doesn’t make the pool wrong — you do need to hire — but it tells you exactly what you’re trading, and where there’s room to negotiate (a smaller pool, or a post-money pool, shifts who pays).
Sizing it honestly
Size the pool from a real hiring plan: the roles you’ll fill before the next round, and roughly what equity each needs. A first senior engineer might need 0.5–1.5%; an early VP more. Add those up, leave a little headroom, and you’ll usually arrive somewhere near that 10–15% — but now you’ll know why, instead of accepting a number because the term sheet named it.
Now model one
Set your founder shares, a hypothetical round, and a target pool. Watch the pool get carved out of your ownership before the investor’s — and see the exact cost of the shuffle. When it looks right, keep it — the post-round cap table is saved to your workspace.
Model your option pool
| Holder | Shares | Post-round |
|---|---|---|
| Founders | 1,000,000 | 70.0% |
| ESOP pool | 142,857 | 10.0% |
| SeedNew investor | 285,714 | 20.0% |
A 10.0% pool, carved before the money, is created by issuing 142,857 new option shares — and the dilution comes entirely from your slice, not the investor’s. That’s the option-pool shuffle: it costs you roughly 10.0% on top of the round itself. You end at 70.0% at ₹70/share.