Entrepreneurship · Business Development

How much should you set aside for a stock option pool at a Series A?

Zannatul Ferdous Chairman of the Board at Xpart Solutions

October 1st, 2016

We already allocated a fair amount at the beginning of the business when we incorporated. The amount was 15%. Now investors are asking for an additional 7% allocation to the stock option plan. By how much do you normally increase the pool at a Series A round of financing? Many thanks.

Donavon Urfalian A.I. Engineer / Entrepreneur / Founder & CEO @ Umazed / Kodo Startups

October 1st, 2016

If you are the CEO, and have the C level folks, you can reduce the option to 10-15% to keep more of your equity/preferred stalks.

Hamid Farzaneh CEO and Co-Founder at Alea Labs, Inc.

October 1st, 2016

My experience is that VC's typically want a 20-25% option pool size pre series A.

Selvan Rajan

October 1st, 2016

Don't go with investors asking. They will stand to gain as it dilutes yours.
Use a simple calculation:
1. How long is it going to be the until the next round? Typically it is 12 months to 18 months
2. How many employees are you planning to hire? Now for each position, how much are you planning to allocate? This is what you need.
If you come up with the right number with the backup data, you should be ok. You can always increase it if you need more. What if you need only 10%, and in this case, the post-money per-share value will have the unnecessary 10% unused shares in it. Without the right number that you can come up, you may be forced to go with what the investors are asking for. So, do your math.

Tom DiClemente Management Consulting | Interim CEO/COO | Coach

October 2nd, 2016

We cannot comment on the increase since we do not know how much you have already given, the amount in the hands of founders, or the composition of the team and what other team members may have to be recruited.

But generally, without knowing any of the above, we would want to see 20% in a Series A funding at our post-money valuation.

Dane Madsen Organizational and Operational Strategy Consultant

October 1st, 2016

Agreed with the 20% but the investors will want that done before their money is in (there is some room to negotiate, but that depends on how strong their interest is in the investment).  They do not want to take dilution of their investment, so it will be higher than 20% to start so to achieve 20% after their money is in.