Option Pool and Pool Shuffle, Explained

Last updated: 2 November 2026

An option pool is equity set aside for employees. The option pool shuffle is when investors require that pool before new money, so founders are diluted twice.

What is an employee option pool?

An employee option pool is equity set aside for employees, to attract, retain, or reward talent, representing an ownership stake in the business. The options in the pool are not owned by anyone until they are granted. Even so, they still count in the fully diluted share count.

This distinction matters because the pool can change ownership percentages before any employee has received a single option. Founders and other existing holders should therefore look at fully diluted numbers, not just issued shares, when they assess a funding round. A pool that looks like a future promise is, in ownership terms, a present claim.

How big should the pool be?

The most common size for an option pool is between 10% and 15% of company equity, with 10% being the most frequent choice, according to the 2026 Term Sheet Guide quoted by HSBC Innovation Banking. Other guides give 10% to 20% of fully diluted shares, depending on hiring plans and investor requirements. The same guide says that in 71% of cases the term sheet mentioned creating or topping up a pool.

Our advice is to build the pool from a hiring plan, using roles and expected grant sizes, rather than settling on a round number. A hiring plan gives a clearer link between the pool and the people the company actually needs to hire over the next stage. It also makes the number defensible in negotiation, because each percentage point can be traced to a named role and an expected grant.

What is the option pool shuffle?

When investors require the pool to be created before the new money, in the pre-money, founders get diluted twice: first by the creation of the option pool and again when new shares are issued. Venture Hacks says that putting the option pool in the pre-money benefits investors in three different ways, because the pool dilutes only existing holders, looks smaller than it is, and unused options go back to existing holders on a sale.

The first effect is that the pool dilutes only existing holders, not the incoming investor. The second is that the pool looks smaller than it is, because it is expressed as a share of a smaller base. The third is that unused options go back to existing holders on a sale, which means the investor does not bear the cost of options that are never granted.

By contrast, post-money pool treatment spreads dilution across all shareholders, so it is founder-friendly. The practical point is that the same headline valuation can produce very different outcomes depending on whether the pool is taken from the pre-money or shared after the investment. A founder comparing two term sheets should therefore look past the headline figure.

Worked example (ours, simple numbers)

Take an investor putting in £2.0m at an £8.0m headline pre-money valuation, with a 10% post-money pool. The post-money value is £10.0m. The investor owns 20% and the pool is 10%, so existing holders keep 70%. Their effective pre-money value is 70% of £10.0m, which is £7.0m, not £8.0m. The pool has consumed £1.0m of the headline.

With a 20% post-money pool, where the investor still takes 20%, existing holders keep 60%, giving an effective pre-money of £6.0m. This matches the Venture Hacks result of $6m for an $8m headline with a 20% pool. Venture Hacks also says that cutting the pool from 20% to 10% lifts the effective valuation from $6m to $7m, and the price per share from $1.00 to $1.17.

Pool size	Effective pre-money
10%	£7.0m
20%	£6.0m

The table uses a headline pre-money of £8.0m and an investment of £2.0m. It shows why a larger pool reduces the value retained by existing holders, even where the headline valuation does not change. What this means: a bigger pool is not free; it is paid for by the people already in the company.

How do you negotiate it?

Ask for a hiring plan-based pool: list roles for the next 12 to 18 months and a grant size for each, then ask for the pool to be sized to that plan. This keeps the discussion tied to actual hiring needs rather than a default percentage. It also forces both sides to agree on what the pool is for before agreeing on how large it should be.

Also ask which pool is being counted: only the unallocated part, or including already granted options. Finally, compare offers on effective pre-money, not on headline pre-money. These checks make it easier to see who really bears the cost of the pool.

How do options in the pool work in the UK?

UK companies often grant EMI options from the pool. For the tax conditions, readers should check HMRC guidance or take advice. Options normally vest over time, so readers should also check the vesting and cliff terms that apply to any grant. Vesting and cliff terms determine when an employee actually earns the right to exercise their options.

Frequently asked questions

What is an option pool?

An option pool is equity set aside for employees, to attract, retain, or reward talent, representing an ownership stake in the business. The options are not owned by anyone until granted, but they still count in the fully diluted share count.

What is the option pool shuffle?

The option pool shuffle happens when investors require the pool to be created before the new money. Founders are then diluted twice: first by the creation of the option pool and again when new shares are issued.

Is a post-money pool better for founders?

Post-money pool treatment spreads dilution across all shareholders, so it is described as founder-friendly. It avoids concentrating the pool’s dilution on existing holders before the investment.

How should a founder compare two term sheets?

Compare offers on effective pre-money, not on headline pre-money. A lower headline valuation with a smaller pool can sometimes leave existing holders with more value than a higher headline with a larger pre-money pool.

What should readers check about UK tax and vesting?

UK companies often grant EMI options from the pool, so readers should check HMRC guidance or take advice on the tax conditions. Options normally vest over time, so the vesting and cliff terms should also be checked.

Sources

Figures and prices were checked on 2 November 2026; check the linked sources before relying on them. This article is general information, not tax, legal or investment advice.