The Option Pool Shuffle
Investors demand a 15% option pool post-money. But mathematically, they force you to create it pre-money.
The Illusion of the Pre-Money Valuation
You agree to a $10M pre-money valuation and a $2.5M investment. You think you are giving up 20% of the company ($2.5M / $12.5M post-money). But the term sheet includes a clause: "The pre-money valuation includes an unallocated option pool equal to 15% of the fully diluted post-money capitalization."
The Shuffle Mechanics
Because the 15% pool must exist in the post-money cap table, but the investor demands it be created before their money buys shares, 100% of the dilution from creating the pool falls on the founders and existing common shareholders. The new investors take zero dilution.
The Math: $10M Pre, $2.5M Raise, 15% Pool
| Post-Money Valuation | $12,500,000 |
| Investor Target Ownership | 20.0% |
| Required Post-Money Pool Target | 15.0% |
| Left for Founders | 65.0% |
The True Pre-Money Valuation
Since the founders only retain 65% of the $12.5M post-money, their equity is worth $8.125M. The "effective" pre-money valuation they actually achieved is $8.125M, not $10M.
How to Negotiate It
Never accept a generic 15% or 20% pool request. Build a bottoms-up hiring plan. If you only need to hire 4 engineers and a VP of Sales before the next round, model out exactly how many shares they require (e.g., 8%). Negotiate the pool size down to the exact percentage needed to reach your next funding milestone.