Almost every venture term sheet contains a line about the option pool. It looks administrative. It is, in fact, one of the most expensive lines in the document, and founders routinely agree it without seeing what it does to their own shareholding.

What the pool is for

An employee share option scheme — an ESOP or ESOS — sets aside a block of shares to grant to employees over time. Investors want to see a pool because they want the company to be able to hire and retain the people who will build the value they are backing. So far, so uncontroversial.

The argument is not about whether there is a pool. It is about when it is created, because that decides who bears the dilution.

Pre-money versus post-money

Suppose your company is worth RM20 million pre-money and an investor puts in RM5 million. Post-money, the company is worth RM25 million and the investor owns 20%. Simple enough.

Now the investor asks for a 10% option pool. If that pool is created post-money, everyone — founders and the new investor — is diluted proportionately to make room for it. If the pool is created pre-money, it is carved out of the company’s value before the investment, which in practice means it comes out of the founders’ shareholding. The investor still gets their clean 20%; the founders absorb the entire pool.

This is the “option pool shuffle”. Same headline valuation, very different outcome for the people who started the company. On a real cap table the difference is commonly two to four percentage points of the company — worth a great deal at the eventual exit.

How to handle it

  • Size the pool to a hiring plan, not a round number. If you only need to grant 6% to hire the roles before your next raise, a 15% pre-money pool is money you are giving away. Bring a hiring plan to the negotiation.
  • Model it both ways before you sign. The pre-money / post-money choice should be a deliberate decision, not a default buried in a template. Our fundraising calculator shows you the effect on your holding in a minute.
  • Negotiate the split. “The pool is pre-money” is a starting position, not a law of nature. A larger pool can be created post-money, or the two of you can share it. It is a commercial point with a real number attached.

None of this means resisting an option pool. A well-sized pool is how you hire the team that makes everyone rich. It means understanding, before you sign, which side of the table is actually paying for it.

This article is general commentary, not legal advice. The right pool size and structure depend on your circumstances and your investors’ requirements — speak to us before you agree a term sheet.