How to use the option pool shuffle calculator
- Enter the pre-money valuation from the term sheet and the investment amount.
- Enter the option pool you need after the round, as a share of all shares after the round, and your shares issued today and option pool shares today.
- Read the effective pre-money valuation for existing shareholders and the price per share.
- Check the ownership table to see each holder's share before and after the round.
Formula
post-money = pre-money + investment
investor share = investment / post-money
shares after F = issued shares / (1 - pool share - investor share)
price per share = post-money / F
effective pre-money = price per share x issued shares
The pool is counted inside the pre-money valuation, so it is created before the new investor buys in and dilutes only the existing holders. If the pool you already have is larger than the target, no new shares are created.
A $2 million round at an $8 million pre-money
The term sheet states an $8,000,000 pre-money valuation and a $2,000,000 investment, so the post-money valuation is $10,000,000 and the investor owns 20%. Existing holders have 8,000,000 shares and the pool has 500,000 shares. The investor wants a 10% pool after the round.
The shares after the round solve F = 8,000,000 + 10% x F + 20% x F, which gives 11,428,571. The price per share is $10,000,000 / 11,428,571 = $0.875. The total pool is 1,142,857 shares, so 642,857 new pool shares are created. The existing holders keep 8,000,000 shares worth $7,000,000.00 at that price, which is the effective pre-money. The other $1,000,000 of the stated $8,000,000 is the value of the pool.
Why the effective pre-money is lower
Investors often want enough unissued options set aside to hire the next few people before the next round. If the pool is created after the money comes in, it dilutes everyone. If it is created before, as the term sheet usually says, it dilutes only the existing holders. The price per share is then set on a share count that already includes the pool, so the existing holders are valued below the headline number.
The size of the effect depends on the pool target and how much of it already exists. A larger target or a smaller current pool means more new shares and a bigger gap between the stated and effective pre-money.
Using the numbers in a negotiation
The page makes the cost of a pool visible so you can discuss it in terms of price per share and ownership. Pool targets are often negotiated, and a plan for who will be hired can justify a smaller one. Related pages: the Founder Equity Split Calculator, the Liquidation Preference Calculator and the Distribution Waterfall Calculator show how ownership turns into money at an exit.
Assumptions and limits
- The pool target is a share of the fully diluted shares after the round, counting issued shares, the whole pool and the new investor.
- Only one round is modeled, with no convertible notes, warrants, preferred share terms or rounding of shares.
- The valuation, investment and share counts in the fields are examples you can replace.
- This is arithmetic for discussion and is not legal or financial advice.
Frequently asked questions
What is an option pool shuffle?
It is the practice of counting the new option pool inside the pre-money valuation, so that the pool dilutes the existing owners but not the new investor. The effective pre-money valuation is the value placed on the existing shares alone.
Does the investor ownership change when the pool changes?
No. The investor ownership is fixed by the investment divided by the post-money valuation. A bigger pool takes its share from the existing holders.
What if my current pool is already large enough?
Then no new pool shares are needed. The page leaves the pool as it is, prices the round on the shares that exist and shows zero new pool shares.
Why does the page refuse some pool sizes?
If the pool share and the investor share together reach 100%, there is no room left for the existing holders and no price per share can be found. Lower the pool or the investment.