Equity Pool

An equity pool is a company’s budget for employee compensation. If the pool is 10M shares and the company has already granted 8M, only 2M shares are left to grant. Run out of pool and you can’t hire without a costly shareholder vote to increase it.

How the pool is sized

A company starting out needs to estimate its hiring and compensation needs for the next 3–5 years. A venture-backed startup with $10M Series A funding and 5 current employees might authorize a 5M-share pool, planning to grow to 50 employees and grant equity along the way.

The pool includes all equity awards: options, RSUs, restricted stock, everything. An employee granted 10,000 RSUs consumes 10,000 shares from the pool.

Pool sizing is political. Founders want a large pool (flexibility to grant generously to attract talent). Investors want a modest pool (to limit dilution and preserve founder ownership). Negotiating the pool is a key term in venture financings.

Public companies disclose their equity pool in proxy statements. As of a typical tech company’s IPO, the pool might be 15% of total shares outstanding. A company with 100M shares outstanding and a 15M-share pool can grant 15M more shares before needing shareholder approval for expansion.

Depletion and refreshes

Over time, companies grant equity and deplete the pool. If a company authorized 10M shares and has granted 9M, it has 1M remaining. If the company is still hiring, 1M shares might be exhausted in a few years.

When the pool runs dry, the company must request a shareholder vote to increase it. This is a nuisance:

1. For public companies: Shareholder votes take time. Employees might have to wait weeks or months for new grants.
2. For startups: Pre-IPO, the board can amend the pool informally (if all shareholders agree). Post-IPO, shareholder votes are required.

To avoid frequent exhaustion, companies use “evergreen provisions” in the plan. An evergreen clause automatically increases the pool each year by a fixed percentage (e.g., 5% of outstanding shares) or fixed number (e.g., 2M shares). This is approved upfront and doesn’t require repeated shareholder votes. Most public company plans include evergreens.

The pool as a hire constraint

At late-stage private companies and startups approaching IPO, the equity pool often becomes a constraint on hiring. If a company has 50 employees and a 5M-share pool with 4.9M granted, it has 100k shares left—enough for one mid-level hire, not a whole engineering team.

This creates a cascading problem: the company can’t attract senior hires (who want equity), can’t grow, and needs to IPO sooner. Companies in this situation sometimes artificially lower the pool by asking executives to take lower initial grants or refreshes.

Conversely, companies with large remaining pools can be generous—attracting talent with large equity packages—without depleting quickly.

Pool size at IPO

A typical tech company at IPO might have:

• Outstanding shares: 100M
• Option pool reserved for future grants: 15M (15% post-IPO pool)
• Employee share percentage (vested + unvested across all employees): 10–25%

A company where employees own 15% (after all vesting is complete) is reasonably generous. A company where employees own 5% kept a small pool and was stingy on equity compensation.

Post-IPO equity is issued at the IPO price. An engineer granted options at IPO at $50/share has a known grant date price. There’s no uncertainty like in private companies.

Pool dynamics across funding stages

Early-stage pools are percentages of authorized shares (which are often high; a startup might have 10M authorized, with 5M currently issued). Post-IPO pools are percentages of outstanding shares.

The pool and dilution

Every equity grant dilutes existing shareholders. If a company has 100M shares outstanding and grants 1M new RSUs, existing shareholders’ ownership percentage decreases by 1%.

Over time, large pools and frequent grants create significant dilution. A startup founded in 2015 with a 10M-share pool might have issued 8M of those shares over seven years. Current and former employees own a large percentage of the company. Founders’ ownership percentage is diluted significantly.

This is why investors carefully model the impact of equity grants on post-exit cap table. A founder with 30% at Series A, who grants away equity aggressively, might have 15% at IPO. The dilution is the cost of building a company.

Pool negotiation at hiring

Individual employees don’t negotiate from “the pool.” The company negotiates the pool with investors; then HR allocates from the pool to individual hires.

However, you can negotiate your grant size as part of your offer:

• Negotiate upfront with the company’s founder or board.
• For late-stage private or public companies, pool is fungible, but your grant is your own negotiation.

Executives and founders sometimes negotiate a share of the remaining pool (“20% of the grant pool for the next three hires I approve”). This gives them alignment on future hiring compensation.

Pool exhaustion and late-stage exits

Companies sometimes run out of pool shortly before IPO or acquisition. If the pool is exhausted and IPO is pending, the company might do an emergency shareholder vote to expand the pool, or issue bonuses to recent hires to compensate for lack of equity.

Acquisitions can also deplete pools. If an acquirer values a company cheaply, employee equity becomes worth less. New grants (to retain employees post-acquisition) are issued at the new lower valuation and deplete the acquirer’s pool faster.