Should the option pool come out of pre-money or post-money?
By SuLe · Updated 12 May 2026
If the option pool is created or enlarged "pre-money", the dilution falls entirely on the existing shareholders and your effective pre-money valuation is lower than the headline number. A pool created "post-money" dilutes everyone, including the incoming investor. Where the pool sits is a negotiation about who pays for future hiring — and it usually comes out of the founders.
Key facts
- A pre-money pool dilutes only existing shareholders, lowering your effective pre-money below the headline figure.
- A post-money pool dilutes everyone, including the new investor.
- A 10% post-round pool is a common investor ask — but the right size depends on your actual hiring plan.
- The "option pool shuffle" is investors placing the pool pre-money so the shares for future hires come from the founders, not them.
- Every extra point of pre-money pool is a point of founder dilution — size it against real roles, not a round number.
Why does the pool's placement change anything?
An option pool is a block of shares reserved for future employees. Creating it means issuing new shares, which dilutes existing owners.
The only question is who bears that dilution. Place the pool pre-money and it is baked into the pre-money valuation, so existing shareholders absorb all of it. Place it post-money and it is created after the investment, so both founders and the new investor share the hit.
Because the pool exists to hire people who benefit the whole company, founders often argue it should dilute everyone — that is the post-money case. Investors usually argue the opposite.
What is the "option pool shuffle"?
The "shuffle" is the investor's move of insisting the pool go in pre-money. It sounds technical, but it quietly transfers value.
When the pool is carved out of the pre-money, your headline valuation stays the same on paper, but the shares set aside for it come entirely from the existing holders. Your effective pre-money — the value actually attributed to your shares — drops by the value of the pool.
So a "£6m pre-money" with a chunky pre-money pool can be worth noticeably less to you than £6m. The investor's percentage, meanwhile, is untouched. Naming this out loud in negotiation is half the battle.
How much should the pool be, and where should it sit?
Size the pool to your genuine 18-month hiring plan, not a default. A 10% post-round pool is a common ask, but the right number depends on the roles you actually intend to fill and the equity each will need.
An oversized pre-money pool is pure founder dilution for hires you may never make; an undersized one forces a top-up next round, often on similarly founder-unfriendly terms. Model both.
Then negotiate the placement. Splitting the pool, or agreeing a smaller pre-money pool with a top-up mechanism later, are common middle grounds. The share options cluster covers sizing in more depth.
Where does UK law come into it?
Placement is a commercial negotiation, but the mechanics run through the Companies Act 2006. Creating the pool means allotting new shares or reserving them for issue, which needs the right authorities and Companies House filings.
UK priced rounds commonly follow the BVCA model documents, where the pool is defined as part of the fully diluted pre-round share count. Because the price per share is pre-money divided by that count, expanding the pool pre-money lowers the price and hands the investor more shares — the arithmetic engine behind the shuffle. Get the share numbers checked before completion, because the effect compounds into every later round.
| Pool created pre-money | Pool created post-money | |
|---|---|---|
| Who is diluted | Existing shareholders only | Everyone, including the new investor |
| Effect on your effective pre-money | Lower than headline | Matches headline |
| Investor's percentage | Protected | Diluted too |
| Who usually asks for it | The investor | The founders |
| Founder-friendly? | Less | More |
Worked example
Tomas and Wei raise for their marketplace startup at a £6m headline pre-money, taking £2m — a £8m post-money — with a 10% post-round option pool.
If the pool sits pre-money, the investor keeps their full 25% (£2m ÷ £8m), the pool is 10%, and the founders and existing holders are left with 65%. Their effective pre-money is 65% × £8m = £5.2m — some £0.8m below the £6m headline, all of it out of their pocket.
If the pool instead sits post-money, the 10% comes from everyone: the investor is diluted to 22.5% and the founders hold 67.5%, worth £5.4m. Same headline, same pool — but the placement moves roughly £0.2m and 2.5 percentage points between founders and investor.
Where founders go wrong
Treating "£6m pre-money" as fixed value
— a large pre-money pool can make it worth well under £6m to you; ask for the effective pre-money.Accepting a round 10% without a hiring plan
— size the pool to real roles, or you dilute yourself for hires you never make.Missing that the pool protects the investor's percentage
— that is the whole point of a pre-money pool; recognise it and negotiate the split.Not recomputing the share numbers
— check the price per share and resulting percentages yourself before signing; the effect compounds every round.
Related questions
What is the option pool shuffle?
It is the effect of putting a new or enlarged option pool into the pre-money valuation. The pool then dilutes only the existing shareholders, not the incoming investor, so your effective pre-money is lower than the headline figure suggests. Investors usually ask for it; founders usually push back.
Does a pre-money option pool cost the founders?
Yes. If the pool is carved out before the investment, the dilution falls entirely on you and the other existing holders. A 10% pool on an £8m post-money company effectively removes about £0.8m from the founders' side while leaving the investor's percentage untouched.
Why do investors want the pool pre-money?
Because it protects their percentage. A pre-money pool means the shares needed for future hires come out of the founders' stake, not the investor's, so the investor gets the ownership they negotiated without being diluted by hiring that benefits everyone.
How should I push back on a pre-money pool?
Size the pool to your real 18-month hiring plan rather than a round 10%, and negotiate whether it sits pre- or post-money. Every extra point of pre-money pool is a point of founder dilution, so justify the number against actual roles you plan to fill. [More: How big should a startup option pool be?]
The option pool shuffle is one of the most expensive terms founders miss, precisely because it hides behind an unchanged headline valuation. A SuLe solicitor can compute your effective pre-money, size the pool against your hiring plan, and show you exactly what each placement costs. Book a free term sheet review before you agree the pool.
Keep reading: Pre-money vs post-money valuation — what's the difference? · How big should a startup option pool be? · What is a valuation cap and how does it work? · What is a cap table and how do I keep it clean? · What is an EMI share option scheme? · What founder protections should I negotiate in a term sheet?
Primary sources: BVCA — model documents for UK venture capital · Companies Act 2006
