Option Pool Shuffle

Requiring a new or enlarged option pool to be created within the pre-money valuation, so its cost falls on existing shareholders rather than the new investor.

Example

A headline 8,000,000 pre-money with a 10% post-money pool created pre-money gives existing holders an effective 7,000,000 pre-money.

Important

Two offers with the same headline valuation can differ materially depending on where the pool is created.

Related terms

• Option Pool — A block of shares set aside to grant stock options to employees, advisers and future hires.
• Pre-Money Valuation — A company's agreed value immediately before a financing round's new money is added.
• Price Per Share — The amount paid for each new share in a funding round, calculated after all option pool and conversion mechanics.

Lessons that explain it

• The option pool shuffle quietly lowers the founders' real price — Post-money equals pre-money plus the new investment. But when investors require an option pool to be created inside the pre-money valuation, the existing shareholders bear its full cost. (13 min)

All 578 terms in the Investing glossary