Creating Option Pools
When your company gets to a certain size, you will undoubtedly begin creating option pools in order to have proper allocation of stock options to attract new talent. A good startup lawyer can make this process simple and painless, so I’ll defer the legal corporate aspects to those experts.
Instead, a couple of personal pointers you may want to keep in mind as the founder…
Avoid Dilution from Large Pools
Often founders create option pools in 10% increments. While that’s a fairly common practice in larger companies, it is not a rule so use your judgment. In general, you want to keep your pool small, just enough for the next round of critical hires. Otherwise, having an unnecessarily large pool may dilute your options holders.
Accommodate Your Hiring Plan
Understanding the above however, also make sure your pool size goes in line with your actual hiring plan in the immediate future. For example, if you’re looking to level up your team and hire a CTO, CPO, and a number of technical folks, you may need to rethink your pool size to account for the number of options you will need to distribute. Otherwise you end up having to go through the pool creation process multiple times in rapid succession.
Line Up Your 409a Schedule
Generally speaking, you should be conducting a 409a evaluation each year, and it often helps to line these up with major tranches of stock grants and/or option pool changes. That way, your capitalization table is always up to date when you perform new 409a evaluations, and you’re able to issue stock options more readily.
