Valuation timing for option pool top-ups
Pre-money valuation is the value agreed for the company before new investment is added, and post-money valuation is pre-money plus the new money invested. Both are explained in more detail at pre-money valuation and post-money valuation. Whether the option pool top-up is counted as part of the pre-money share count or added afterward changes who pays for it, even though the headline pre-money valuation figure can look the same in both cases.
Founder ownership under different pool timings
A company agrees a 10,000,000 pre-money valuation and raises 2,500,000, giving a 12,500,000 post-money valuation and a 20% investor stake. The investor also asks for a 10% fully diluted pool. If the pool is created pre-money, its cost is added to the pre-money share count, so founders' fully diluted percentage falls further than the headline pre-money valuation implies. If the pool is created post-money, the investor's 20% and the pool's 10% both come out of the combined post-money share count, and founders retain more, a distinction that matters most when read alongside pool dilution mechanics.
| Scenario | Founders | Pool | Investor |
|---|---|---|---|
| Pre-money pool | 70.0% | 10.0% | 20.0% |
| Post-money pool | 72.0% | 8.0% | 20.0% |
Numbers are illustrative to show the mechanic. Exact percentages depend on the specific share counts and round terms negotiated.
Term sheet discussions on pool reservation timing
- Ask explicitly whether the quoted pre-money valuation already includes the pool top-up.
- Model both pre-money and post-money pool scenarios before agreeing to a term sheet.
- Treat the effective pre-money valuation, after accounting for the pool, as the real number to compare across offers.
- Remember that a higher headline valuation with a large pre-money pool can be worth less to founders than a lower valuation with a smaller pool.
Clearing up pre-money and post-money pools
- Why do investors prefer pre-money pools?
- It protects their ownership percentage from dilution caused by future hiring, since the pool cost falls on existing shareholders instead.
- Is the option pool shuffle common in Europe?
- Yes, it is standard practice in many European term sheets, though the exact pool size and timing are negotiable.
- How do I compare two term sheets with different pool assumptions?
- Convert both to the same basis, usually the founders' resulting fully diluted percentage, rather than comparing headline pre-money valuations directly.
General information for founders, not legal or tax advice. Thresholds and rates change, so confirm the current position with an adviser in the relevant country before granting.