Startup Option Pool by Valuation: How Pools Shift as Companies Grow

With the slew of new data that came out of the PitchBook-NVCA Venture Monitor r this week, startup option pool by valuation has been on our mind. So, we dug into the Thelander Option Pool Report (available on the Thelander Platform) to see how rising valuations changed the makeup of the option pool between founders, employees and investors (that data drop is coming tomorrow).

Valuations are rising, especially for top-tier startups, but it’s important for companies at all levels to understand how valuation relates to compensation.

Valuations primarily affect compensation by determining the value of the shares held by founders and employees. But this effect is mediated by how portions of the option pool are allocated to different groups, which changes as companies raise more capital and their valuations increase (in an ideal scenario). 

For founders, the median size of the option pool tends to shrink as valuation goes up. Getting the founder equity percentages right early matters significantly because the decisions made in those first rounds of financing set the baseline for everything that follows. 

Managing this process throughout the lifecycle of a company, and ensuring that even as founders’ percentage of the overall pool goes down their shares remain competitive for the stage they’re at, is exactly why accurate, real-time market data matters at every step along the way — especially as founders begin drawing from the employee option pool to refresh their own equity for holding a current position. 

For employees, the story is different. Their percentages stay steady at 10% before the median pool size starts increasing as the company valuation exceeds $50 million. This reflects the growing size of companies with higher valuations and the need to keep employee compensation competitive by refreshing options for existing employees and granting equity to new hires to keep them incentivized with skin in the game. 

What’s the bottom line? If you’re a founder, understanding your startup option pool by valuation stage is critical — we can’t stress how important it is to get your equity percentages right in the beginning. And you need to keep track of the different considerations involved in both your founder option pool but also your employee option pool. It’s equally critical to have an eye towards the future – refreshing key employees and setting part of the pool aside for new hires because you’re going to need to expand the option pool to accommodate your team as your company scales. 

To see how your current mix of cash and equity compensation compare to market, you can fill out the no-cost Thelander Private Company Compensation Survey to access real-time data for all the job titles you complete. 

Categorised in: Data Drops

This post was written by jthelander