Pool top-ups and who absorbs the dilution

1. The core idea#

Almost every priced round includes a condition that the company's option pool be topped up to a target size, for example "an unallocated pool equal to 12% of the post-money fully diluted capitalisation". The question that decides who pays for it is simple: is the top-up counted before or after the new money comes in?

• Pre-money top-up (the market norm): the new options are added before the investors buy in, so only existing shareholders, mainly the founders, are diluted by them. The investors' percentage is unaffected. This is the "option pool shuffle": the headline pre-money valuation stays the same, but the effective price per share falls, so the founders' real valuation is lower than it looks.
• Post-money top-up: the new options are added after the round, so investors share the dilution in proportion to their stake. Rare in priced rounds, but negotiable.

Because the shuffle is standard, the real lever is the size of the top-up. Every percentage point of unallocated pool that is bigger than you need comes almost entirely out of the founders' stake, and unused options at exit flow back to all shareholders, not just the founders who paid for them.

So the method is: build a bottom-up hiring plan for the period until the next round, size the pool to that plan plus a buffer, count options already promised, and negotiate from that number rather than the investor's default.

Who this is for: founders reviewing a term sheet with an option pool clause; founders with SAFEs or notes about to convert in a priced round; anyone planning hiring and equity budgets between rounds.

Pairs with: 5.01 (sizing the pool at each stage), 5.04 and 5.05 (grant sizes), 5.19 (modelling the cap table across rounds).

2. What the evidence says#

Pools are smaller than many term sheets ask for. Carta's data on more than 15,000 startups that raised over five years puts the median seed-stage employee pool at 11.8% after the round closes. Carta's Peter Walker has repeatedly argued that 20% pools are too big and that almost nobody uses them; the median seed pool is about 12%. A separate

Carta analysis found pools typically start around 10% at pre-seed and grow by roughly 1– 1.5 percentage points per round. The median pre-seed company reserves about 9%, rising to almost 19% by Series D, with a wide spread of about 10 points between the 25th and 75th percentiles.

Pools are rarely used up. Carta notes that the employee pool is almost always not fully used, and that unallocated equity left at a sale usually flows back to the founders. Practitioner summaries put typical utilisation at around 60–70% of allocated shares. That is the cost of oversizing: founders pay for the whole top-up upfront but get only part back.

The shuffle changes real dilution. Practitioner analyses estimate that a Series A that looks like 25% dilution on the term sheet is often 29–32% once the pool top-up is included. Index Ventures' research found the median pool requested by Series A investors is 15%, with a range of 10–20% depending on the investor.

How SAFEs interact. In Y Combinator's post-money SAFE, the "company capitalisation" used to set the conversion price includes the existing pool and promised options, but not a pool increase made in connection with the priced round, except to the extent promised options exceed the existing pool. So the new top-up in the round dilutes the founders (and earlier shareholders), not the SAFE holders. Founders with large SAFE stacks bear the top-up twice over: they are diluted by the SAFEs converting, and they absorb the pool increase alone.

Investors' view is reasonable, within limits. A lead investor wants the price it pays to include enough options to hire the team its money is meant to build, so it is not diluted by grants made right after closing. The disagreement is about size, not principle.

3. The method#

Step 1: Build the hiring plan to the next round#

List every hire you expect before the next priced round (usually 18–24 months), with level and a grant size from your equity bands (5.04, 5.05). Add:

• Promised but ungranted options (offer letters, advisor agreements).
• Refresh grants for existing staff, typically 25–50% of original grants for top performers after two to three years.
• A buffer of 10–20% for surprises: a senior hire who costs more than planned, an extra scientist.

Step 2: Compare with what's left#

Subtract the unallocated options you already have. The gap is the top-up you can defend.

Step 3: Model the alternatives#

Show the lead investor the hiring plan and a model of founder ownership under their pool size and yours, both pre-money and post-money (worked example below). Most investors respond to a credible plan.

Step 4: Negotiate the levers#

Agree to a reasonable pool in exchange for something you care about more. Pool size is one term among many.

Worked example#

A deeptech startup has 9.5 million fully diluted shares before its seed round: founders 8.6 million, granted or promised options 0.6 million (including an advisor grant already promised), and 0.3 million unallocated in the pool. So 9.2 million shares are held or promised, and 0.3 million are free. The lead offers $4 million at a $16 million pre-money, with a 12% unallocated pool post-money, topped up pre-money.

How scenario A works: the investor's 20% and the 12% pool are both fixed percentages of the post-round total, so the existing 9.2 million shares must equal 68% of it: 9.2 ÷ 0.68 = 13.53 million. The pool needs 1.62 million unallocated options, a top-up of 1.32 million. The investor's $4 million buys 2.71 million shares at $1.48.

The founders' hiring plan to Series A needs 0.75 million options plus a 0.2 million buffer, which is roughly 8% of the post-round total. Moving from A to C is worth 3.7 percentage points of the company to the founders, without changing the headline valuation. In the negotiation they settle at 10% pre-money, with the investor accepting the hiring plan, and agree that any shortfall before Series A will be met by a top-up negotiated then.

4. Country notes: India, US, UK#

India.

• Pools are a shareholder-approved number. The ESOP scheme approved by special resolution sets the maximum number of options. A top-up needs a fresh special resolution (or an amendment), so build it into the round's closing conditions and shareholder approvals.
• Indian term sheets usually mirror US practice: an ESOP pool "on a fully diluted basis, pre-money". Indian VCs commonly ask for 10–15% at seed and Series A.
• Foreign investors price their CCPS on a fully diluted basis that includes the pool. FEMA pricing rules (4.19) apply to the investor's price, so the valuation report must use the same share count as the term sheet.
• ESOP trusts: some Indian companies hold the pool in an ESOP trust that subscribes to shares upfront. Check how the trust's shares are counted in fully diluted calculations.

US.

• Shareholder approval is needed to increase the plan's share reserve, and for ISO purposes the plan must state the maximum number of shares available as ISOs.
• NVCA term sheets state the pool size and whether it is in the pre-money. The postmoney SAFE's treatment of pool increases (section 2) applies to most US pre-seed money.
• Delaware franchise tax under the authorised-shares method rises with authorised shares; recalculate under the assumed par value method after a top-up (4.18).

UK.

• EMI headroom: the company-wide EMI limit is now £6 million of unexercised options at grant-date value, for grants from 6 April 2026. A larger pool can be reserved, but grants beyond the limit must use CSOP or unapproved options.
• BVCA model documents handle the pool in a similar way to US forms. UK seed rounds on SeedLegals-style platforms often set the pool as a percentage of post-money with a pre-money top-up.
• SEIS/EIS: creating and granting options does not affect investors' SEIS/EIS relief, but issuing new shares to an ESOP trust can need checking against the schemes' rules.

5. Scripts, mistakes, related playbooks, sources#

Scripts#

Responding to a 15–20% pool request:

"We've built a hiring plan to Series A: [x] hires, [y] options including refreshes and a buffer, which is about [z]% post-money. We'd like to size the pool to that. Here's the plan by role. If we hire faster than this, we'll top up at the next round, when the hires will also have raised the company's value."

If the investor won't move on size:

"We understand you want the pool in the pre-money. If the pool stays at [x]%, our effective pre-money is [amount], not [headline]. Can we bring the headline up to [amount] so the price reflects the actual dilution?"

Explaining the shuffle to co-founders:

"The valuation on the term sheet is [x], but because the new options are created before the investor buys in, we pay for all of them. In practice our shares are being priced as if the company were worth [y]. That's why the pool size matters as much as the valuation."

Common mistakes#

1. Negotiating valuation and ignoring the pool.
2. Accepting a round-number default (15% or 20%) without a hiring plan.
3. Forgetting promised options, then needing another top-up soon after closing.
4. Not modelling SAFEs and notes, which change who absorbs the top-up.
5. Topping up far beyond need "to be safe", when unused options mostly benefit everyone pro rata at exit.
6. Missing shareholder approvals for the increased pool (India: special resolution; US: plan amendment).
7. Mismatched share counts between the term sheet, valuation report and cap table.

Related playbooks#

• 4.08 Setting up the cap table and choosing a tool
• 5.01 Sizing the ESOP pool at each stage
• 5.02 ESOP plan design: India (Companies Act rules) vs US (ISOs and NSOs)
• 5.04 Allocating equity by level
• 5.05 ESOPs for second-line employees: grant bands and refreshes
• 5.19 Modelling the cap table across rounds

Sources#

• Carta (Peter Walker): median seed pool 11.8% post-round (April 2025); pool size by stage; pools grow ~1–1.5 points per round; unallocated pool at exit.
• Peter Walker via Sierra Ventures on 20% pools.
• Practitioner summaries of pool utilisation and the shuffle's effect on dilution: Stealth Agents research.
• Y Combinator, post-money SAFE (definition of "Company Capitalization"); Venture Hacks, "The option pool shuffle" (2008).