Definition
A reserve of shares set aside to recruit employees with stock options, typically carved out before valuation to dilute founders rather than investors. A necessary evil that feels like robbery when you're calculating founder ownership.
Example Usage
The VCs insisted on a 20% option pool before the investment, which meant the founders' 60% stake suddenly became 48% after dilution.
Origin
Standard equity compensation practice dating to 1950s corporate structures, formalized in VC deals in the 1980s
Fun Fact
Savvy investors always push to create or expand the option pool before their investment, ensuring founders bear the dilution cost rather than the new investors.
Source: NVCA term sheets and equity compensation documentation
Related Terms
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See “option pool” in Corporate Speak, Gen-Z Slang, Pirate Speak, and more.
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