Sizing the ESOP pool at each stage

The core idea#

The option pool is the slice of the company set aside to give future employees equity. Two questions matter: how big it should be, and whose stake it comes out of . The size should come from a hiring plan, not a rule of thumb: who you'll hire before the next round, and what each of them will need. Whose stake it comes from is decided in the term sheet. In most deals the pool is created or topped up before the new money comes in, so it dilutes only the existing shareholders, usually the founders. A pool that's too big wastes founder equity; one that's too small means renegotiating, or failing to hire, a year later.

Stage: pre-seed to Series A, then every round · Lens: Core, with deeptech and India specifics · Reading time: about 30 minutes

Who this is for#

• Founders setting up a pool for the first time, at or before the seed round.
• Founders negotiating a term sheet that asks for a pool top-up.
• Spinout teams whose first hires are scientists and engineers with long timelines.

What you leave with#

• Benchmarks for pool size by stage, in the US, India and the UK.
• A method to size the pool from a hiring plan, with a worked example.
• The arithmetic of the "option pool shuffle", and how to negotiate it.
• The legal mechanics in each country.

What the data says#

United States#

• The median seed pool is about 12%, not 20%. Carta's head of insights, Peter Walker, says 20% pools are too big and almost nobody uses them (Sierra Ventures, summarising Carta data). Across more than 15,000 startups, the median seed-stage employee pool after the round closes is 11.8% (Carta).
• Pools start small and grow slowly. They typically begin at about 10% at pre-seed and grow by about 1 to 1.5 percentage points per funding round (Carta).
• 10% is the most common term-sheet ask. HSBC Innovation Banking's 2026 Term Sheet Guide finds the most common pool size is 10% to 15%, with 10% the most frequent (Carta, citing HSBC).
• After the seed round, the founding team typically holds about 56% and the employee pool about 12% (Carta).

India#

• Indian pools run smaller. Indian advisers put typical seed pools at 8% to 12% of the fully diluted company, created before the investor's shares are issued (Treelife). Indian law sets no minimum or maximum; the size is purely a commercial term (Treelife).
• Pools have tended to shrink as companies grow, the opposite of the US pattern. An older Trifecta Capital analysis found 78% of Indian startups at Series A had pools under 10%, and growth-stage pools averaged 7.5% to 8%, against 16% to 17% at US Series C/D. It attributed this to investors with ownership targets eroding the pool (India Tech, citing Trifecta Capital). Treat this as directional: it predates the current wave of global investors in Indian rounds, which Treelife says is pulling Indian pools towards US levels from Series B onward (Treelife).

Summary benchmarks#

Total pool vs available pool. A term sheet that asks for a "15% pool" usually means 15% unallocated after the round. Shares already granted to employees don't count towards it. Always check which one an investor means.

Sizing the pool from a hiring plan#

Benchmarks tell you what is normal. A hiring plan tells you what you need. Investors respect a bottom-up number far more than "we think 10% is fine", and it is your best tool against an inflated ask.

The method#

1. Set the horizon: until the next priced round, plus a margin. The pool only has to last until the next round, when it will be topped up again. Carta found the median gap between seed and Series A for rounds raised in Q2 2025 was 616 days, about 20 months (Carta). Deeptech gaps are often longer, so plan for 18 to 24 months.
2. List every hire you expect in that window, by role and seniority. Include advisers, who are usually granted out of the same pool.
3. Assign a grant to each, as a percentage of the fully diluted company after the round. Use the benchmarks in playbook 5.04. Senior and early hires get much more than later ones.
4. Add it up, then add a buffer of 20 to 30% for unplanned hires, a key hire who costs more than expected, and early refresh grants.
5. Subtract anything already granted that the investor counts as part of the pool.
6. Present the result as the available pool after the round, with the plan attached.

Worked example: a materials spinout raising a seed round

The grants below are illustrative, not benchmarks. Replace them with numbers from playbook 5.04 and your market.

If the lead investor asks for a 15% pool, this plan is the basis for proposing 8 to 10%. In a $2.5 million round at a $10 million pre-money valuation, each point of pool is worth $125,000 of founder value at the seed price. A 15% ask against an 8% need costs founders about $875,000, and much more by exit (worked through in the next section).

Signs your plan is off#

• Fewer than about 8 hires before the next round usually means the plan is too thin, or the round is too small for the milestones.
• One person takes more than a third of the pool. That's normal if it's a future CEO or CTO (see 3.04). Otherwise, check whether the role is really a co-founder role.
• The pool needed is above about 15% at seed. Either the grants are too rich, or you're planning a Series A-sized team on seed money.

The option pool shuffle#

What it is#

Most term sheets say the pool must be created or topped up before the investment, and counted in the pre-money valuation. Investors want the pool to dilute the existing shareholders, not their newly bought shares. The effect is that founders pay for the whole pool, and the real price per share is lower than the headline valuation suggests. Carta's data team calls this the "option pool shuffle", and calls getting the pool size right crucial (Carta).

Worked numbers#

A $2.5 million seed at a $10 million pre-money valuation, so $12.5 million post-money. The investor gets 20%. The company has no pool yet.

The "effective pre-money" is what the founders' shares are worth at the round price: their percentage times $12.5 million. With a 15% pre-money pool, a headline $10 million valuation is really $8.1 million to the founders. Each extra point of pool is a point off the founders.

How to negotiate it#

1. Lead with the hiring plan. "Here are the 12 hires we'll make before the Series A. They need about 8%. We'll top up at the next round."
2. Negotiate valuation and pool together. A higher headline valuation with a bigger premoney pool can be worth less than a lower valuation with a right-sized pool. Compare offers on effective pre-money.
3. Count existing grants correctly. If you've already promised options to early hires, agree whether those count towards the investor's required pool.
4. Trade, don't concede. For example, accept a 12% pool if the valuation moves up, or agree that unused pool returns to the cap table.
5. Ask whether the top-up can happen post-money, or be split. Investors usually say no at seed and Series A, but some agree to share part of a large top-up.
6. Remember the next round. The next investor will ask for a top-up anyway, so a pool sized for 20 months, not five years, is the right answer.

Unused pool#

If the pool isn't fully used before an exit, the unissued shares simply never exist, and everyone's percentage rises slightly. So an oversized pool isn't lost forever. But it costs founders control and voting weight until then, and it inflates the base for the next round's top-up.

Deeptech specifics#

Longer gaps between rounds mean planning further ahead#

A software company might reach its Series A in 18 to 20 months. A hardware, materials or bio company often takes longer, and may raise grant or bridge money in between. Size the pool for the realistic gap, not the optimistic one. Agree with investors that if a bridge round is raised, the pool is reviewed then, not left until the Series A.

Scientists value equity differently#

• Academic hires often compare your offer with secure academic salaries and pensions. They tend to discount equity heavily, especially if they've seen spinouts fail. Expect to explain options more and to need slightly more cash.
• Industry scientists from big pharma, chemicals or semiconductors may be used to restricted stock or bonus plans at large companies, not options. Show them a simple model of what the grant could be worth at the next two rounds and at exit, with the dilution included.
• PhD students and postdocs joining before the seed round are often better treated as founders (playbook 3.05) than as option holders. Giving them options at seed pricing out of a small pool can make them feel second-class.

Advisers come out of the same pool#

Deeptech companies use more advisers than most: scientific advisory boards, clinical or regulatory experts, industry veterans. A typical adviser grant is small and vests over two years. Five or six advisers can still use a meaningful slice, so put them in the hiring plan. Make every adviser grant vest, tied to a defined commitment (for example, quarterly meetings plus a set number of hours).

The university may hold a separate stake#

If the university or institute holds equity (playbook 2.11), check two things:

• Is it protected from dilution until a funding threshold (anti-dilution)? If so, a pool created before that threshold dilutes only the founders, on top of the shuffle. Model it.
• Does the university's consent appear in the shareholders' agreement for creating or enlarging the pool? Some do. Build the approval into the round timetable.

Refresh grants for long journeys#

By the time a deeptech company reaches product, its first scientists may be fully vested. Plan a refresh grant budget from the Series A onward, typically a share of the top-up, so key technical staff keep unvested equity. See playbook 5.05.

Making it work in India, the US and the UK#

General information, not legal or tax advice. Pool mechanics are set by company law and tax law, which change often; check the current rules with your adviser.

India (private limited company)#

• Legal basis. ESOPs are issued under Section 62(1)(b) of the Companies Act 2013 and Rule 12 of the Companies (Share Capital and Debentures) Rules 2014. Shareholders must approve the scheme; a board resolution alone is not enough (TaxGuru).
• Ordinary or special resolution? A 2015 exemption lets a private company with up-todate filings pass an ordinary resolution, but Rule 12 still says special resolution and the two have never been reconciled. Most advisers pass a special resolution to be safe. The exemption doesn't apply if the company is a subsidiary of a public company or is behind on its annual filings (Treelife).
• The explanatory statement to the resolution must set out the total number of options, the classes of eligible employees, the vesting period and the exercise period, among other things (Treelife). Creating the pool this way doesn't issue any shares or dilute anyone until options are exercised (TaxGuru).
• Minimum one-year vesting. There must be at least one year between the grant and the first vesting date. This is a legal floor, not a convention (Treelife).
• Promoters are normally excluded. Promoters and directors holding more than 10% generally can't receive ESOPs. A DPIIT-recognised startup may grant to them within 10 years of incorporation (Treelife).
• Two ways to hold the pool:
  • Direct allotment: options are granted, and new shares are issued only when an employee exercises. The pool is a reserve on the cap table, not issued shares.
  • ESOP trust: a trust holds shares or buys them for employees. It needs an additional special resolution under Section 67(3)(b) and compliance with Rule 16 (Treelife). Trusts are more complex, but help with buybacks and liquidity programmes.
• Filings. The resolution is filed on Form MGT-14, grants are recorded in the ESOP register (Form SH-6), and allotments on exercise are filed on PAS-3 (TaxGuru).
• Tax. Employees are taxed on the gain at exercise as salary (a "perquisite"). Employees of eligible startups can defer that tax. Eligible means DPIIT-recognised and holding the inter-ministerial board (IMB) certificate for the startup tax holiday, not just DPIIT recognition. Under the Income-tax Act 2025, for shares allotted from 1 April 2026, the tax is due at the earliest of 60 months (previously 48), sale of the shares, or leaving the company (CalcGuru; Patron Accounting). Confirm eligibility with your CA; extending the deferral to all DPIIT startups has been discussed but not enacted.
• Valuation. A registered valuer's report sets fair market value. It drives the employee's tax and the price advice.

United States (Delaware C-corp)#

• Plan adoption. The board adopts an equity incentive plan with a share reserve (the pool), and stockholders approve it. Stockholder approval within 12 months is needed for options to qualify as tax-favoured incentive stock options (ISOs).
• 409A valuation. Options must be priced at no less than fair market value under Section 409A. Get an independent 409A valuation before the first grants and after each priced round or material event.
• ISOs and NSOs. Employees can receive ISOs, which get better tax treatment if holding rules are met. Advisers and contractors receive non-qualified options (NSOs). Increasing the pool at a financing means a board resolution and stockholder approval to amend the plan reserve. It is usually done at closing.

United Kingdom (private limited)#

• EMI options are the default for qualifying companies. From 6 April 2026, the limits rose: gross assets up to £120 million (from £30 million), fewer than 500 employees (from 250), and £6 million of shares under unexercised EMI options per company (from £3 million) (GOV.UK). EMI options granted from that date can be exercised for up to 15 years (Ashtons Legal).
• The per-employee limit of £250,000 of shares under option (Clarion) still applies.
• The pool itself is usually set in the articles or the investment agreement as a percentage of share capital. It needs shareholder approval to change, and investors normally ask for it before closing, as in the US.
• Spinouts: check whether the university's investment agreement caps the pool or requires consent to increase it.

Documents checklist#

Scripts for the pool conversation#

When the term sheet asks for a large pre-money pool#

"We've built the pool from our hiring plan for the next 24 months, and it comes to 11%. Here's the role-by-role sheet. We're happy to set it at that, and to top it up at the Series A if we're hiring faster than planned. A 15% pre-money pool would leave about 4% unallocated at the next round, and that comes entirely out of founder ownership. Can we work from the plan rather than a round number?"

Why it works: it moves the talk from a convention to evidence, and offers the investor a fallback (a top-up later) so they aren't carrying the risk of an under-sized pool.

When the investor won't move on size#

"If the size has to stay at 15%, can we split it: 11% pre-money now, and the remaining 4% created at the next round or when we hit [milestone], post-money?"

Or ask for something of equal value: a higher pre-money valuation, so the founders' effective price stays the same. Show the effective pre-money calculation from section 4 so the trade is explicit.

Explaining the pool to your co-founders#

"The pool isn't money we're giving away. It's the equity we'll use to hire the eight people we need to get to the Series A. If we make it too small, we'll either fail to hire or have to create more later on worse terms. If we make it too big, we've diluted ourselves for nothing. So we've sized it to the plan."

Explaining options to a scientist you're hiring#

"You'll get options over 0.6% of the company, vesting over four years with a one-year cliff. Today they're priced at the current fair value, so they're worth nothing unless the company grows. Here's what 0.6% looks like after two more rounds of dilution, at three different exit values. I'd rather you see the realistic range than a big headline number."

Common mistakes#

• Accepting a round-number pool without a plan. 10%, 15% and 20% are conventions, not requirements. Without a hiring plan you have no basis to negotiate.
• Not noticing the pool is pre-money. The headline valuation looks good, but founders pay for the whole pool. Always calculate the effective pre-money.
• Counting the existing unallocated pool twice. If there is already a pool with unallocated options, it counts toward the target. Make sure the term sheet says so.
• Promising grants before the scheme exists. In India especially, options can't be granted until the special resolution is passed and the scheme is in place. Offer letters should say grants are "subject to board approval under the ESOP scheme".
• Using the pool for founders. A late co-founder or a key PI should normally get founder shares with vesting (playbook 3.06), not options from the pool, unless they are a promoter-eligible grantee under DPIIT rules.
• Forgetting advisers. Advisers are often granted informally and nobody tracks the total. Put every adviser grant in the hiring plan.
• Leaving the 409A or valuation out of date. In the US, granting options below fair market value creates tax penalties for the employee. Revalue after each priced round.
• No refresh budget. Long deeptech journeys mean the first employees vest out before the company reaches value. Plan refreshes from the Series A.

How this fits with other playbooks#

• 2.11 University and institute equity: whether the university's stake is protected from dilution by the pool.
• 3.05 PhD students and postdocs as co-founders: founder shares versus options.
• 3.06 Vesting and cliffs for founders.
• 5.04 Equity by level: how to divide the pool across roles.
• 5.05 ESOPs for second-line employees: refresh grants and keeping them motivated.

Sources#

• Carta, data on option pool sizes and the option pool shuffle (US and UK guides, newsletter analysis of pre-money pools).
• Carta blog summarising the HSBC Innovation Banking 2026 Term Sheet Guide (UK pool norms).
• Sierra Ventures and Carta, founder and employee equity data.
• GOV.UK, Expanding the eligibility limits of the Enterprise Management Incentive scheme.
• Ashtons Legal, EMI schemes: expanded eligibility.
• Clarion, Enterprise Management Incentives: wider access from April 2026.
• Treelife, ESOP compliance in India and ESOPs for startups.
• TaxGuru, ESOP rules under the Companies Act.
• CalcGuru, ESOP taxation for startups.
• India Tech / Trifecta, Indian ESOP pool benchmarks.

Last checked November 2026. Tax limits and company law change often; check the current position before acting.