Term sheet clause 2 of 25 · Economics
Option pool (the 'shuffle') in a term sheet
In plain English: Shares reserved for future employees. If created in the pre-money, the dilution falls on existing shareholders only. Typical: Often 10-15% available after the round, created in the pre-money.
Founder-friendly
Pool sized to an 18-24 month hiring plan.
Investor-friendly
A fixed large % regardless of plan.
What to watch for
Red flag
A pool far bigger than your hiring plan needs.
How to model it
Don't judge this clause by reading it; put numbers on it. In our workbooks it's modelled in Priced Rounds (pool top-up); Headcount, so you can see what it changes in your ownership or your payout before you agree.
Negotiating it: option pool
Principle: The hidden valuation lever.
- Size the pool from your hiring plan (Headcount tab) for the next 18-24 months.
- Show the math: roles x typical grant = options needed.
- If the pool must be bigger, ask for a higher pre-money to compensate.
Investor asks for a 15% pool
"Our hiring plan for the next 18 months needs about 8-10%. Here's the breakdown by role. Can we size the pool to the plan, and top it up at the next round if we need more?"
One of the scripts from the Negotiation Playbook. The playbook has more for each topic, plus what to give and what to hold.
Not legal advice. Norms vary by country and market cycle. Have a startup lawyer review your term sheet before you sign.