Who bears the dilution from an option pool refresh?

Typically existing shareholders, including founders, since the pool expansion is usually structured as part of the pre-money cap table before the new investment is priced.

Is option pool size negotiable?

Yes — while investors often propose a standard percentage, founders can and should negotiate pool size based on actual near-term hiring needs rather than accepting a default figure.

How does an option pool refresh affect the real valuation of a round?

It effectively lowers the real price per share founders receive, since new pool shares dilute existing shareholders before the new investment is priced — the effective valuation is often lower than the headline pre-money number suggests.

How does PitchProtocol help founders understand the full terms of a fundraising offer?

PitchProtocol structures your fundraising process so founders go into term sheet negotiations with clear context on standard terms like option pool refreshes. Apply to the First 100 Founders Cohort →

Option Pool Refresh: What It Means and When Investors Ask for One

What an option pool refresh actually is

Companies reserve a pool of shares specifically for employee equity compensation — grants to new hires, promotions, and refresh grants for existing employees. As a company grows and hires, this pool needs periodic expansion, and investors in a new funding round typically require the pool be sized adequately (often 10%–20% of the post-money cap table) before their investment closes.

Why investors ask for this specifically

Investors want confidence the company can hire competitively without further dilution to their own stake. By requiring the option pool to be sized appropriately before the round closes, investors ensure their percentage ownership isn't further diluted later by option pool expansions needed to support hiring plans.

A pre-money pool expansion effectively lowers the pre-money valuation. Because the pool refresh is typically created before the new investment is priced (as part of the "pre-money" cap table), the new shares added to the pool dilute existing shareholders — mainly founders and current employees — not the new investors, even though the headline pre-money valuation may look unchanged.

Why this matters more than founders often realize

The effective valuation is lower than the stated number. A larger-than-necessary pre-money option pool refresh effectively reduces the real price founders are getting for their equity, even if the pre-money valuation quoted in the term sheet looks the same as expected — this is one of the most common places where the effective terms of a deal diverge from the headline number.

Pool size is a negotiable term, not a fixed requirement. The specific size of a pool refresh is a genuine negotiation point — founders should push back on pool sizes that are larger than the company's actual near-term hiring plan requires, rather than accepting a standard percentage without scrutiny.

How founders should approach this negotiation

Model actual hiring needs before agreeing to a pool size. Rather than accepting a generic 15%–20% pool size, founders benefit from modeling out specific hiring plans for the period the new round is meant to fund, and negotiating a pool size that matches that real need.

Understand the true effective valuation, including the pool dilution. Founders should calculate the effective price per share after accounting for the pool refresh's dilutive effect, not just the stated pre-money valuation, to understand the deal's real economics.

Consider whether some of the pool expansion can happen post-money. In some negotiations, splitting pool expansion between pre-money and post-money can shift some of the dilutive impact to new investors as well, rather than placing it entirely on existing shareholders.

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