← All terms The option pool is a block of shares reserved under an equity incentive plan
for future grants to employees, advisors and sometimes directors. Grants out
of the pool (options, RSUs, or local equivalents) vest over time; the pool
itself is counted in the fully diluted share count whether or not it has been
granted, which is why its size moves every ownership percentage on the cap
table.
The negotiation that matters is the pool shuffle. Investors customarily
require the pool to be created or increased before their money converts into
shares, in the pre-money. Placed there, the dilution from the new pool falls
entirely on existing holders, founders first, while the investor buys into a
company already carrying the reserve. The same pool placed post-money would
dilute everyone, investor included, which is precisely why term sheets do not
write it that way.
2 habits keep the shuffle honest. First, translate any proposed pool into
its real cost: pool points demanded pre-money are equivalent to a lower
pre-money valuation, and can be negotiated as such. Second, drive the size
from a named hiring plan rather than a convention; an oversized pool is not a
safety margin, it is dilution warehoused today that a future round will
demand be topped up anyway.
In Canada
Term sheets in Canada, whether on CVCA model documents or a US lead's paper, put the option pool in the pre-money by default, so its cost lands on existing holders. Because Canadian rounds are typically smaller, each unneeded pool point costs founders proportionally more of the company per dollar raised. Size the pool from the actual 18 to 24 month hiring plan, not from whatever percentage the term sheet proposes by habit. One Canadian nuance: employee options in a CCPC carry a favourable tax treatment for the team, which helps a smaller cash compensation budget compete for talent, and is part of what a Delaware flip gives up.
Run the numbers
A CA$2,000,000 round at $8,000,000 pre-money buys the investor 20% of the $10,000,000 post-money company. The term sheet also requires an unissued option pool of 10% post-money, created before the money comes in. On a 10,000,000-share post-money cap table, the pool's 1,000,000 shares come out of the existing holders, so founders and earlier investors end the round diluted by 30%, not 20%. The investor's effective pre-money for the existing business falls from $8,000,000 to $7,000,000, the headline price per share unmoved: the founders fund the entire pool.
Updated July 9, 2026. Open this term in the app →
