When investors require the option pool to be created in the pre-money valuation, existing shareholders, mostly founders, pay for it. On an $8M pre-money with a $2M investment and a 10% post-money pool, the pool is worth $1M, so the founders' effective pre-money is $7M. Negotiate the pool size against a real hiring plan.
- Pool in the pre-money = existing holders are diluted by it; new investors are not.
- Effective pre-money = headline pre-money − value of the new pool.
- Investors size pools for 18–24 months of hiring; bigger is better for them.
- A hiring plan with planned grants is the best negotiating tool.
- In Germany, the "pool" is often a virtual share plan rather than real options.
How does the shuffle work?
| Term sheet | Value |
|---|---|
| Headline pre-money | $8,000,000 |
| Investment | $2,000,000 |
| Post-money | $10,000,000 |
| Option pool, 10% of post-money, created pre-money | $1,000,000 |
| Effective pre-money for existing holders | $7,000,000 |
The investor still gets 20%. The pool gets 10%. Existing holders end up with 70% instead of the 80% the headline numbers suggest.
Why do investors structure it this way?
Because the pool is meant to fund hires that make everyone's shares more valuable, and investors do not want their newly bought percentage diluted immediately by grants. It is market standard, so the realistic negotiation is about size, not structure.
How do you negotiate the size?
- Build a hiring plan for the next 18–24 months: roles, timing and planned grant sizes.
- Add the total and a buffer. That is the pool you need.
- Count unallocated options from an existing pool against it.
- Show the plan. Investors usually accept a pool backed by a credible plan.
What about SAFEs and German companies?
With post-money SAFEs, pool increases at the priced round generally dilute founders rather than SAFE holders. See our worked SAFE example. In Germany, startups often use virtual share plans instead of real options; the dilution logic in a priced round is similar, but the mechanics differ. See ESOP vs VSOP in Germany and how much equity to give first employees.
What does it do to founder ownership?
| No new pool | 10% pool in pre-money | |
|---|---|---|
| New investor | 20% | 20% |
| Option pool | 0% | 10% |
| Founders and existing holders | 80% | 70% |
Same headline valuation, ten percentage points less for founders. That is the cost of the shuffle.
What counter-proposals work?
- Smaller pool backed by a hiring plan. "Our plan needs 7%, here are the roles and grants."
- Count the existing pool. Unallocated options already in place reduce the top-up.
- Higher headline pre-money to compensate, if the investor insists on a large pool.
- Top up later in the next round, when you know your hiring needs better.
How does this interact with SAFEs?
Under the YC post-money SAFE, pool increases made in connection with the priced round are generally excluded from the capitalisation used to convert SAFEs, so SAFE holders are not diluted by the new pool; founders are. Our worked example shows the combined effect of SAFEs and a 10% pool on founder ownership: from 100% to about 64%.
What is the German version?
German startups often use virtual share plans instead of an option pool. Investors still ask for a "pool" of virtual units, and its economic effect in a priced round is similar: it dilutes existing holders' exit proceeds. See ESOP vs VSOP in Germany.
Frequently asked questions
What is the option pool shuffle?
The practice of creating or enlarging the employee option pool within the pre-money valuation, so existing shareholders rather than new investors bear the dilution.
How big should an option pool be?
Big enough for the hires planned until the next round, commonly sized from an 18–24 month hiring plan.
How do I calculate effective pre-money valuation?
Subtract the value of the new option pool from the headline pre-money valuation.
Can founders refuse a pre-money option pool?
It is market standard, so refusal is rare. Founders usually negotiate the pool size instead.
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Join the waitlist →Sources and further reading. NVCA model legal documents; Index Ventures, Rewarding Talent.
Educational material, not legal, tax or investment advice. Rules and figures change; confirm with qualified counsel or a tax adviser in your jurisdiction before acting. Last updated October 6, 2026.