An option pool is a number of shares of stock reserved for issuance to service providers (e.g. employees) of a company pursuant to options and other equity incentives.
OPTION POOL FAQ:
The FAQ below refer to Finnish law, please keep in mind there might be differences with other legislations. Always consult with a lawyer and Inventure team for any doubt or further question.
Why do you need an option pool?
Options are a powerful instrument to attract and retain talent by increasing the incentives for the employees and, at the same time, reducing the short term monetary cost for the company.
What impact do options have on the valuation?
Once exercised, options create dilution in the cap table of the company by increasing the number of shares. Once you have created an outstanding option pool always keep in mind the option's dilution effect when calculating the ownership percentages.
How big should the option pool be?
The option pool evolves dynamically with the growth cycle of the company and new funding rounds. There is no hard rule about the size of the option pool. A good rule of thumb, however, is to start with a 3-5% option pool which will then expand over time.
Who should receive options?
It really depends from the company's situation on that point in time and the management philosophy. It varies with different philosophies; some companies opt for a team-wide option distributions, other reserve them only for key personnel. A middle ground between the two alternatives above is to create different option categories (A/B/C) to be allocated to different classes of employees.
In a typical first option plan for C-level recruits, new employees receive between 0,5-1% over a vesting period of 3 years. Following rounds will most likely increase the pool's size. Board members, on the other side, might receive 0,25-0,5% with allocation on yearly based since, being the board members elected/confirmed on a yearly basis, a classic vesting period would not apply.
Check out Index’s option calculator for further industry benchmark.
Option program templates
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