Comments on: The Option Pool Shuffle: Beat the game and raise your valuation

By: Nivi

Nivi — Fri, 11 Apr 2008 15:28:43 +0000

Option 2 is better.

By: Madhavan Thirumalai

Madhavan Thirumalai — Fri, 11 Apr 2008 15:15:11 +0000

We are launching a company that will require 4 rounds of funding over say 4 years. We have two choices:
1. Allocate a single option pool up front for all hiring for the next 4 years
2. Allocate an option pool that will be cover hiring only up to the next round

Which dilutes the founder less? My intuition says that the second option is better because the early investors are diluted along with the founders during the creation of the new option pools.

Got a spreadsheet that models multiple rounds of funding and option pool creation?

By: Nivi

Nivi — Mon, 19 Nov 2007 02:41:47 +0000

Charlie, you are welcome to disagree but that is not the norm. :-)

Even “worse”, the founder’s shares are subject to vesting.

By: Charlie Crystle

Charlie Crystle — Sun, 18 Nov 2007 22:10:39 +0000

I disagree, Nivi. I think founders get founding shares for forming the idea, pulling a company together, and creating value. Then they play roles that otherwise would cost dilution to shareholders through options. Replacement of the founders in their respective roles also creates dilution to shareholders through options. It’s entirely reasonable for the founders to expect compensation for ongoing work; there should be no expectation of philanthropy to other shareholders.

By: Nivi

Nivi — Wed, 03 Oct 2007 17:04:24 +0000

What you are proposing is rational, but that is not the way it is done. :-)

An investor’s offer will define the pre-money which includes an option pool. So if you reduce the size of the option pool, the “effective pre-money” increases so the pre-money your investor offered can stay the same.

By: Jason Noclue

Jason Noclue — Fri, 28 Sep 2007 05:44:41 +0000

One question occurred to me after reading your article, if you could kindly shed some light on it. In your example, if the option pool is lowered to 10%, let’s suppose it be a round number of $1M new options, shouldn’t the post-value be:

$6M effective valuation + $1M new options + $2M cash = $9M

Why would the VC’s ever want to raise the real value of the company to $7M if they think the company is worth only $6M? Keeping it at $6M would certainly also increase their percentage, wouldn’t it?

Thanks.

By: Xobni Man Walking » Blog Archive » Raising Money, Letters to Graduating YC Companies, Letter 2

Wed, 08 Aug 2007 09:41:40 +0000

[...] You want a small option pool. The investors will tell you that the company needs a large option pool. Balony. The debate is really about who pays for the option pool. VentureHacks has a relevant article. [...]

By: Nivi

Nivi — Tue, 24 Jul 2007 02:02:33 +0000

The figures are post-A and rough.

No you don’t double dip. You are already compensated through your founder’s shares.

By: DC

DC — Tue, 26 Jun 2007 02:18:46 +0000

OK…saw the chart on
“How do you create an option pool from a hiring plan?”

Is it correct to assume that the %s shown are post A round share %s?

Also if CEO, COO, etc are also founders and have founders shares…do they double dip and get the %s shown in addition to founders shares?

By: John Galt

John Galt — Mon, 25 Jun 2007 22:11:00 +0000

we’re looking at doing a series a preferred and a note with granted shares at the same time. for example, we are raising $1 million in Series A and issuing $1 million in notes. the debt holder wants free equity equal to half the equity the Series A will get.

how do you think the series a share price should be calculated? should we take dilution on the shares granted to the debt? or, since we havent received benefit from those yet, they should be excluded - even though no new “equity” is coming in from the debt?

post response here or email me at johngalt@jubii.co.uk.

thanks.