option pool expansion

Share Authorization

Corporate boards authorize increases in the unallocated option reserve by filing amended corporate charters with state incorporation authorities. If an existing equity reserve dwindles to two percent, the board expands the authorized pool to ten or fifteen percent of the fully diluted capitalization. This action provides management with equity currency to compete for engineering and executive talent against established enterprises.

Dilution Distribution

Institutional investors routinely require option pool expansions to occur on a pre-money basis, forcing existing founders and common holders to absorb the full dilution. A pre-money expansion reduces founder ownership percentages immediately prior to the investment, leaving the incoming investor ownership stake undiluted by the new pool. Founders negotiate pool sizing meticulously to avoid creating excess unallocated shares that dilute them unnecessarily.

Hiring Allocation

Management grants options from the expanded pool to key hires across defined four-year vesting schedules with annual milestone reviews. As the company scales, the board monitors option burn rates to plan future pool replenishments alongside successive financing rounds. Option pool expansion provides the ownership capacity required to build operational teams across successive growth stages.