How does an employee equity pool work?
Also referred to as the Employee Pool or Option Pool, the Equity Pool is the number of shares a company sets aside or reserves from which it can grant stock options or restricted stock. Companies often use these forms of incentive equity to compensate and incentivize employees, directors and consultants.
How is option pool value calculated?
The option pool lowers your effective valuation. “We think your company is worth $6M. But let’s create $2M worth of new options, add that to the value of your company, and call their sum your $8M ‘pre-money valuation’.” 60\% effective valuation + 20\% new options + 20\% cash = 100\% total.
How many equity options should I give my employees?
The decision on how many options to give each employee will vary depending on the overall size of your option pool (a bigger pool means you have more equity to give them). Our data shows that half of UK startups put aside 5 – 15 \% of their equity at funding rounds towards their options pool, with 10\% being the median.
What percentage of a company’s share price is option pool?
That pool is often 15-25 percent, but the exact percentage varies. The option pool is a percentage of the value of the company, not a percentage of the available shares. If a round of funding adds shares, shares are added to the option pool to keep it at the negotiated percentage of the company.
How much should a company expand its employee stock option pool?
Once companies grant most or all of the pool, they need to expand it. Expansion usually happens during Series B, and might be 5-10 percent more outstanding stock. By Series C and beyond, adding 1-2 percent is sufficient. The later an employee is hired, the smaller their grant is, because:
How much value do unissued shares add to an option pool?
Typically, the unissued shares in your pool would account for somewhere between 10\% and 15\% of the post-money value (what your company is worth after investment closes). Let’s say that the shares you issue to your founding team represent 90\% of the value of the company, and you then create an option pool to which you assign 10\% of the value.