Option Pool
Candlefocus EditorOption pools are set up when a business is first established or during certain times of series funding. It's the responsibility of the entrepreneurs to decide the right size of an option pool, keeping in mind the amount of current and potential equity that needs to be set aside to secure the talent they need to grow the business.
The size and availability of an option pool will generally have an effect on the overall equity of the founders and other stakeholders involved. An option pool allows the owners to offer equity to new team members without having to grant them an immediate stake in the business's total equity — diluting the holdings of the founders and early investors or employees over time.
In terms of setting up an option pool, it's important to bring in an experienced attorney to help with the process. This is to ensure that all the terms governing the option pool are properly drafted and filed, protecting the interests of both the company and its employees. As with any other legal document, however, it's essential to consult with a qualified attorney before moving forward.
In summary, an option pool is an important tool for a startup that allows the business to attract new talent or obtain the capital needed to grow and develop the business. It is, however, not without its downsides, one of which is the manner in which it can dilute the holdings of existing shareholders and stakeholders. In addition, setting up an option pool requires the input of a qualified attorney to ensure the terms and benefits associated with the pool are clearly defined and agreed upon by all parties involved.