AS | Ankit Sarawagi|Founder, CFOmatrix·July 2026·10 min read | Founder guide |
- The pool is reserved, unissued capacity. It is a slice of your fully diluted equity set aside for future grants, not shares already in employees’ hands.
- Typical is 5 to 15 percent of fully diluted equity, with 10 percent the common starting point. Engineering-heavy and very early teams sit higher.
- Size it bottom-up. Build the pool from your 18 to 24 month hiring plan, role by role, not from a rule of thumb.
- Timing decides who is diluted. A pre-money top-up dilutes only existing shareholders and lowers the investor’s effective price. Negotiate its size against real hiring needs.
- Track granted, exercised, lapsed and available continuously, reconciled to the cap table, so you refresh on data and never over-grant.
| 5-15% Typical ESOP pool, as a share of fully diluted equity | ~10% The most common starting point for early rounds | Pre-money Where investors ask the top-up to land, so founders absorb it |
| 1. What the ESOP pool is 2. How big should it be 3. How the pool sits on the cap table | 4. The pre-money top-up trick 5. Planning grants and refreshing the pool 6. Tracking the pool |
What the ESOP Pool Actually Is
An ESOP pool, also called the option pool, is a reserved slice of your company’s fully diluted equity set aside specifically for granting stock options to employees, advisors and sometimes consultants. The key word is reserved. The pool is authorised, unissued capacity: shareholders approve a block of equity earmarked for future grants, and you carve individual grants out of that block as you hire, without going back for a fresh shareholder vote each time. This is company-side plumbing. For how an option looks from the employee’s side, see our guide on how ESOPs work in India.
The authorised pool is the total reserved. Granted options are the slice promised to specific people under vesting schedules. Issued shares only appear when options are exercised. A 10 percent pool with 6 percent granted still has 4 percent available to grant.
How Big Should the Pool Be?
For Indian startups the pool is typically 5 to 15 percent of fully diluted equity, and 10 percent is the most common starting point. But that range is a sanity check, not the sizing method. The right way to size a pool is bottom-up from your hiring plan: list the roles you must fill over the next 18 to 24 months, attach an indicative grant to each, add a buffer for refresh grants and promotions, and total it. The percentage falls out of the plan, rather than the plan being forced into a percentage.
| Stage / profile | What drives it | Typical pool |
| Pre-seed / seed | Equity does a lot of the hiring; several key roles still open | 10-15% |
| Engineering / product heavy | Deep senior technical hires paid partly in equity | 12-15% |
| Series A | Refresh to cover hiring until Series B | 10-12% |
| Later stage / cash-rich | More cash compensation, fewer large equity grants | 5-8% |
Sketch the org chart you need at your next milestone, mark which roles get equity and roughly how much, and sum it. If that total is 8 percent, do not reserve 15 percent just because it is round; over-reserving pre-money is dilution you gave away for nothing.
How the Pool Sits on the Cap Table and Dilutes Founders
The pool is real equity carved out of the fully diluted base, so creating or enlarging it dilutes existing shareholders, founders included. There is no free pool. The only question is who bears the dilution, and that is decided entirely by when the pool is created relative to a funding round. This is the single most important thing to understand about pool sizing, because it is where founder ownership quietly leaks. For the full ownership picture the pool lives inside, read our pillar guide on running ESOPs and equity the company-side way.
“Founders think of the option pool as something they give to employees. On the cap table it is something they give up first. Size it to the hiring plan, and pay attention to when it is created, because the timing decides whether you or your new investor pays for it.”
Ankit Sarawagi, CFOmatrixA grant that vests and is exercised turns pool capacity into issued shares, moving equity from the reserved line into a real shareholder’s hands. Until then, the reserved pool already counts in the fully diluted base, which is why investors price off fully diluted equity and why a bigger pool means a lower effective price per share for whoever created it.
The Pre-Money Top-Up Investors Ask For
When you raise a priced round, investors almost always ask you to create or top up the pool to a target percentage before the money goes in. This is the pre-money top-up, sometimes called the option pool shuffle. Because the new pool is added to the pre-money cap table, it dilutes only the existing shareholders, and it lowers the effective price per share the investor pays. Put simply: the incoming investor gets their target ownership, and the cost of the new hiring capacity lands on the founders, not on the new money.
| Question | Pre-money top-up (what investors ask) | Post-money top-up |
| Who is diluted by the pool? | Existing shareholders only | Everyone, incl. new investor |
| Effect on investor’s effective price | Lower price per share | Higher, fairer price per share |
| Investor still gets target %? | Yes | Yes |
| Founder cost of a 1% bigger pool | Founders bear ~100% of it | Shared with investor |
Investors often propose a large pre-money pool as a default. Every extra point comes out of your ownership. Come to the table with a costed hiring plan and negotiate the pool down to what you will actually grant before the next round. An oversized pre-money top-up is one of the most common avoidable founder-dilution mistakes.
None of this makes the pre-money top-up unfair; a pool that funds hiring genuinely benefits the company the investor is buying into. The point is that the size is a negotiation, and the only honest anchor for that negotiation is a real, role-by-role plan of what you will grant before you raise again.
Planning Grants and Refreshing the Pool
Once the pool exists, the discipline is to plan grants against it and refresh it before it runs dry, not after. The approvals are the same each time you create or enlarge it: a board resolution followed by a shareholders’ resolution under Section 62(1)(b) of the Companies Act 2013 and Rule 12 of the Companies (Share Capital and Debentures) Rules 2014, special or ordinary resolution as applicable to your company. Individual grants within the approved pool are then cleared by the board or a delegated ESOP or compensation committee, without a fresh shareholder vote.
Treat the pool like a budget with a burn rate. Knowing you have granted 6 of 10 percent and have four key hires left tells you at a glance whether you can hire from the existing pool or must negotiate a top-up at the next round. That single view keeps founder dilution intentional instead of accidental.
Tracking the Pool
All of the above depends on one thing: knowing, at any moment, how much pool you have left. A spreadsheet works for the first few grants, then drifts as grants, exercises, lapses and top-ups accumulate and versions diverge. What you actually need is a live view of the total authorised pool against granted, exercised, lapsed and available, reconciled to the cap table. Keep a simple checklist.
This is exactly what a dedicated tool does. In ESOP Flow, you record your Total Pool Shares at company setup, and every grant, exercise, termination and lapse updates automatically. The Option Pool Summary and Option Pool Movement report show granted, exercised, lapsed and available at any date, so you always know your remaining capacity before you make the next grant or size the next top-up, without maintaining a fragile spreadsheet. For how the pool connects to grants and vesting, read our guide on designing vesting schedules, and for the wider ownership record, how to manage your cap table well.
Frequently Asked Questions
What is an ESOP pool?
An ESOP pool, also called the option pool, is a slice of the company’s fully diluted equity that the board and shareholders reserve specifically for granting stock options to employees, advisors and sometimes consultants. It is not issued shares sitting with people; it is authorised, unissued capacity set aside so that future grants do not need a fresh shareholder approval every time. On the cap table it appears as a distinct line, usually expressed as a percentage of fully diluted shares, and grants are carved out of it as you hire.
How big should the ESOP pool be?
For Indian startups the pool is typically 5 to 15 percent of fully diluted equity, and 10 percent is the most common starting point. Size it bottom-up from your actual hiring plan for the next 18 to 24 months, not from a rule of thumb: list the senior and key roles you must hire, attach an indicative grant to each, add a buffer for refresh grants, and total it. Engineering-heavy and very early teams, where equity does a lot of the compensating, tend to sit at the higher end; later-stage teams that pay more cash sit lower.
Does the ESOP pool dilute founders?
Yes. The pool is real equity carved out of the fully diluted base, so it dilutes existing shareholders. Who bears that dilution depends on timing. If the pool is created or topped up before a priced round (a pre-money top-up, sometimes called the option pool shuffle), it dilutes only the existing founders and shareholders and effectively lowers the per-share price the incoming investor pays. If the pool is expanded after a round, all shareholders including the new investor share the dilution. Investors almost always ask for a pre-money top-up, so founders should negotiate the size against a real hiring plan.
When do I top up the ESOP pool?
You top up when the remaining unallocated pool can no longer cover your next hiring cycle, and most commonly at each funding round, because investors want the pool refreshed to a target percentage to cover hiring until the next round. Check available pool capacity against your forward hiring plan every quarter, and formally top up when it runs low, when a round is being negotiated, or when a large senior hire would exhaust it. Track it so you are refreshing on data, not scrambling at the last minute.
Who approves the ESOP pool?
Creating or increasing the pool needs a board resolution followed by a shareholders’ resolution under Section 62(1)(b) of the Companies Act 2013 and Rule 12 of the Companies (Share Capital and Debentures) Rules 2014. A special resolution is common practice, though private companies can approve by ordinary resolution under the MCA exemption, so treat it as special or ordinary as applicable to your company. Individual grants within an approved pool are then approved by the board or a delegated ESOP or compensation committee, without needing a fresh shareholder vote each time.
How do I track the ESOP pool?
Track the total authorised pool, how much is granted, how much is exercised or lapsed, and how much remains available, and keep it reconciled to your cap table. A spreadsheet works at the very start but drifts as grants, exercises and lapses accumulate. A dedicated tool such as ESOP Flow stores the total pool shares at company setup and produces an Option Pool Summary and a movement report showing granted, exercised, lapsed and available at any date, so you always know your remaining capacity before you make the next grant or size the next top-up.
How to Manage Your Cap Table Well
Running ESOPs and Equity: The Company-Side Guide
This is general educational information for founders, current to mid-2026, and is not legal, tax or investment advice. Pool ranges and benchmarks are indicative and vary by stage, sector and hiring plan. Company law procedure (Section 62(1)(b), Rule 12, special or ordinary resolution) applies as relevant to your company; verify the current position or consult a professional before acting on a specific matter.
AS | Founder, CFOmatrix | Finance Strategy & Equity Compliance CFOmatrix helps founders run their equity and ESOP programs properly, from sizing the option pool and designing vesting to grants, exercise, the ESOP register and clean cap-table reporting. This guide is part of the company-side ESOP series that supports ESOP Flow, our free ESOP administration tool for Indian startups. |