The option pool shuffle
The option pool shuffle is what happens when a round requires the option pool to be enlarged, and the new shares are counted in the pre-money. The enlarged pool goes into the denominator before the investor's percentage is worked out, so the existing holders absorb it and the incoming investor does not.
It is not hidden. It sits in the term sheet as a pool size, expressed as a percentage of the post-round company, and it reads like a hiring question.
The round
Same cap table as everywhere else: 8,100,000 founder shares, a 900,000 option pool, 9,000,000 fully diluted.
The offer is $2,000,000 at an $8,000,000 pre-money valuation. That is a $10,000,000 post-money, so the investor takes 20%.
Version one: no pool change
Price per share is the pre-money divided by the existing fully diluted count:
$8,000,000 ÷ 9,000,000 = $0.888889, so $2,000,000 buys 2,250,000 shares
| Holder | Shares | Ownership |
|---|---|---|
| Founders | 8,100,000 | 72.0% |
| Option pool | 900,000 | 8.0% |
| New investor | 2,250,000 | 20.0% |
| Total | 11,250,000 | 100.0% |
Version two: the pool is topped up by 1,000,000 shares, pre-money
The same $8,000,000 pre-money is now divided by a larger count, because the new pool shares are in it:
$8,000,000 ÷ 10,000,000 = $0.800000, so $2,000,000 buys 2,500,000 shares
| Holder | Shares | Ownership |
|---|---|---|
| Founders | 8,100,000 | 64.8% |
| Option pool | 1,900,000 | 15.2% |
| New investor | 2,500,000 | 20.0% |
| Total | 12,500,000 | 100.0% |
The comparison
| Founders | Pool | Investor | |
|---|---|---|---|
| No top-up | 72.0% | 8.0% | 20.0% |
| Top-up, pre-money | 64.8% | 15.2% | 20.0% |
The founders moved 7.2 points. The investor did not move at all.
Same cheque, same stated valuation, same 20% for the investor either way. The entire cost of the new pool landed on the people who were already there.
What the valuation actually was
The offer said an $8,000,000 pre-money. Ask instead what pre-money would have left the founders at 64.8% with no pool change, and the answer is that the investor would have needed 28.0%, which on a $2,000,000 cheque is a $7,142,857 post-money and a $5,142,857 pre-money.
So on these numbers, an $8,000,000 pre-money with a pre-money top-up of this size delivers what a $5,142,857 pre-money would have delivered without one. Change the top-up and that figure changes with it, which is the reason to compute it on your own terms rather than argue about the headline.
What to check in your own documents
- Find the pool size in the term sheet and whether it is stated as a percentage of the post-round company. If it is, work backwards to the shares.
- Ask whether the top-up sits in the pre-money or the post-money. Post-money splits the cost with the investor. Pre-money does not.
- Compute your effective pre-money, the one that produces the same founder percentage without a top-up. That is the number to negotiate against.
- Check what your existing pool still has in it, because a top-up on top of unused room is a bigger ask than it looks.
Run it on your own numbers
Both versions above are the same round with one line changed, and the arithmetic to compare them is not something you want to be doing for the first time on a call.
Promythia surfaces the pool top-up as its own dilution driver, so you can see it separately from the round. Create a free account and model both versions.
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