Should founders negotiate the size of a requested option pool?

Yes, a requested pool size should be justified by an actual hiring plan for the period until the next financing, and accepting an investor's default pool percentage without checking it against real headcount needs is a common way founders give up more equity than necessary. A MedTech company with a long, capital-intensive development timeline may genuinely need a larger pool to retain talent through clinical and regulatory milestones, but that need should be modeled explicitly rather than assumed from market norms alone.

How does the option pool affect price per share in a priced round?

Because the pool top-up is added to the pre-money fully diluted share count, a larger pool for the same pre-money valuation results in a lower price per share, which means the dilutive cost of the pool falls on existing shareholders even though the incoming investor's ownership percentage stays the same. This mechanic is often misunderstood by first-time founders, who may focus only on the headline pre-money number without realizing the pool size directly determines how much of that dilution they personally absorb.

What happens to unused option pool shares over time?

Unused pool shares remain reserved but unissued and are typically carried forward, and refreshed or expanded, at each subsequent financing round rather than returned to common shareholders, so an oversized pool that goes largely unused still represents dilution that was locked in at the time it was created. Tracking pool utilization against the hiring plan at each round helps a board decide whether the next refresh should be smaller, which directly benefits existing shareholders.

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Employee Option Pool

Shares reserved for issuance to employees as stock options.

Reviewed by Christian Espinosa, Founder, Blue Goat CyberLast reviewed May 5, 2026

Definition

An option pool is a set-aside of common stock reserved for grants to employees, advisors, and directors as part of compensation. Pools are typically created or topped-up before each priced round, usually pre-money - meaning founders bear the dilution. Pools are often sized at 10 to 20 percent of fully diluted shares, based on a hiring plan for the next 18 to 24 months. Options are granted at fair market value, usually supported by a 409A valuation in the US. Unused pool shares can be reduced in a later round, so a realistic hiring plan helps limit founder dilution.

What the regulation says

An employee option pool is a corporate finance arrangement, not a MedTech product regulatory requirement. In the US, Internal Revenue Code Section 409A, enacted through the American Jobs Creation Act on October 22, 2004, governs nonqualified deferred compensation. Under 26 CFR § 1.409A-1(b)(5), in final regulations published April 17, 2007, qualifying stock options generally fall outside Section 409A if their exercise price is at least the underlying stock’s fair market value at grant and other conditions are met. An independent valuation can support a regulatory valuation safe harbor, but is not universally mandatory. Discounted options can trigger adverse tax consequences if Section 409A requirements are not satisfied. Equity compensation also raises securities-law obligations. Section 5 of the Securities Act of 1933, enacted May 27, 1933, requires registration of securities offers and sales unless an exemption applies. Companies should establish an applicable exemption rather than assume employee grants are automatically exempt. Pool authorization and grants also depend on applicable corporate law and company documents. A 10 to 20 percent pool, an 18 to 24 month hiring horizon, and pre-money treatment are negotiated financing practices, not regulatory requirements.

What this means in practice

Typical seed/Series A pools are 10–15% post-financing. MedTech companies with longer development timelines often need larger pools to retain talent through clinical and regulatory milestones.

Examples

A startup MedTech company developing a novel diagnostic tool allocates 15% of its fully diluted shares to an employee option pool to attract and retain key engineering and clinical talent.
Before its Series B funding round, an established MedTech firm reviews its hiring plan for the next 18 months and tops up its existing option pool from 5% to 12% to accommodate future growth and incentivize its research team.
After a successful clinical trial, a MedTech company adjusts its option pool downward as it secures more traditional financing, reducing founder dilution by only reserving shares for immediate hiring needs rather than long-term speculative roles.

Common pitfalls

•Letting an investor demand a 20% pool top-up pre-money without negotiating it down based on actual hiring plan.

Frequently asked questions

Investors want assurance that the company can hire and retain key talent through the milestones the new capital is meant to fund, so they typically require the option pool to be refreshed to a specified percentage, commonly 10 to 15 percent, of the post-financing fully diluted share count as a closing condition. Because this top-up is usually structured as coming out of the pre-money valuation, it dilutes existing shareholders (mainly founders) rather than the new investor, which is why the size of the requested pool is itself a meaningful negotiation point, not just a formality.

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Capitalization Table(Cap Table)

Ledger of all securities issued by a company and who owns them.

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Dilution

Reduction in existing shareholder ownership when new shares are issued.

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Vesting Schedule

Timeline over which equity is earned by an employee or founder.

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Tier 2Regulator guidance and consensus· 1Tier 4Trade press and expert commentary· 3

Link health: 4 verified· last checked 2026-06-20· added official documents checked 2026-11-01

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Shares reserved for issuance to employees as stock options.

·Typical seed/Series A pools are 10–15% post-financing.
·MedTech companies with longer development timelines often need larger pools to retain talent through clinical and regulatory milestones.
·Pools are typically created or topped-up before each priced round, usually pre-money - meaning founders bear the dilution.

Remember this

Watch out: Letting an investor demand a 20% pool top-up pre-money without negotiating it down based on actual hiring plan.

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