Hong Life CalculatorsUnderstanding the stock option pool calculator — concept and principle
A stock option pool is a block of shares a startup reserves for future grants to employees, advisers and directors. Founders size it before a financing round or a hiring plan, because the pool dilutes everyone who already owns shares. This calculator answers one practical question: how many new shares must be created so that the pool equals a chosen percentage of the fully diluted total after it is added?
How it is calculated
Let S be the fully diluted shares before the pool and p the target pool as a percentage of the total after the pool is created.
- Shares to add: N = S × p ÷ (100 − p)
- Fully diluted after: T = S ÷ (1 − p/100), which is the same as S + N
"Fully diluted" counts issued shares plus everything that could become shares, such as granted options and warrants. No price or currency is involved.
The principle
The pool must be p% of the new total, not of the old one. If the pool is N and the total is S + N, then N ÷ (S + N) = p/100. Solving for N gives N = S × p ÷ (100 − p). In other words, the existing holders keep (100 − p)% of the new total, so the new total must be S ÷ (1 − p/100). A common shortcut, S × p/100, undershoots: the pool would end up smaller than the target because the new shares also enlarge the denominator.
Worked example
- Inputs: S = 10,000,000 fully diluted shares, target pool p = 12%.
- Existing holders will own 100 − 12 = 88% of the new total.
- Shares to add: 10,000,000 × 12 ÷ 88 = 1,363,636.4, rounded up to 1,363,637 so the pool is not below 12%.
- Fully diluted after: 10,000,000 + 1,363,637 = 11,363,637.
- Check: 1,363,637 ÷ 11,363,637 = 12.0%.
How to read the result
Every existing shareholder is diluted by the same proportion: a founder with 40% of the old total will own 40% × 0.88 = 35.2% after the pool. Early-stage pools are often discussed in the 10–20% range, but the right size comes from a hiring plan: the roles you expect to fill before the next round and the grant each needs.
Common mistakes
- Multiplying the old total by p% instead of solving for the post-pool percentage.
- Confusing "post-pool" with "post-money". If investors require the pool to be p% of the post-money total, the new investor shares must also be in the denominator, and the pool you need before the round is larger.
- Forgetting that existing unallocated options already count toward the pool, so only the top-up is new.
Frequently asked questions
Who pays for the option pool in a funding round?
If the pool is created or enlarged before the investment (the usual "pre-money" pool), only the existing shareholders are diluted by it. That effectively lowers the price per share, a point often called the option pool shuffle.
Does the pool count in fully diluted shares before options are granted?
Usually yes. Most term sheets count the whole authorised pool, granted or not, in the fully diluted capitalisation.
Sources: Brad Feld and Jason Mendelson, Venture Deals, Wiley (chapters on the term sheet and option pool)