Option Pool

AAA

DEFINITION of 'Option Pool'

Shares of stock reserved for employees of a private company. The option pool is a way of attracting talented employees to a startup company - if the employees help the company do well enough to go public, they will be compensated with stock. Employees who get into the startup early will usually receive a greater percentage of the option pool than employees who arrive later.

INVESTOPEDIA EXPLAINS 'Option Pool'

The initial size of the option pool may decrease with subsequent rounds of funding because of investors' ownership demands. The creation of an option pool will commonly dilute the founders' share in the company because investors (angels and venture capitalists) often insist on it.

RELATED TERMS
  1. Diluted Founders

    A slang term often used by venture capitalists to describe the ...
  2. Employee Stock Option - ESO

    A stock option granted to specified employees of a company. ESOs ...
  3. Option

    A financial derivative that represents a contract sold by one ...
  4. Angel Investor

    An investor who provides financial backing for small startups ...
  5. Venture Capitalist

    An investor who either provides capital to startup ventures or ...
  6. Risk

    The chance that an investment's actual return will be different ...
RELATED FAQS
  1. What are the pros and cons of holding a non-controlling interest in a company?

    Most investors hold a non-controlling interest – also known as a minority interest – of the companies in which they own shares. ... Read Full Answer >>
  2. What type of funding options are available to a private company?

    Similar to public companies, private companies also need funding for various reasons. A business typically needs the greatest ... Read Full Answer >>
  3. Which federal regulatory agencies approved and are now responsible for enforcing ...

    Five federal regulatory agencies approved and are jointly responsible for enforcing the Volcker rule. These agencies include ... Read Full Answer >>
  4. Does the Volcker Rule prevent commercial banks from offering shares of hedge funds ...

    The Volcker Rule does not prevent commercial banks from offering trading services in hedge or private equity funds to their ... Read Full Answer >>
  5. What is the purpose of the Volcker Rule?

    The Volcker rule limits two main types of activities by large institutional banks. Banks are prohibited from engaging in ... Read Full Answer >>
  6. How is marginal propensity to save calculated?

    Marginal propensity to save is used in Keynesian macroeconomics to quantify the relationship between changes in income and ... Read Full Answer >>
Related Articles
  1. Investing Basics

    What Is Private Equity?

    This investment vehicle attracts wealthy investors to increase the value of portfolio companies.
  2. Fundamental Analysis

    Cashing In On The Venture Capital Cycle

    Find out how VC firms make the market go round, and round and round.
  3. Investing

    Georges Doriot And The Birth Of Venture Capital

    Venture capital has been around for centuries, but Georges Doriot turned it into a structured field of investment.
  4. Options & Futures

    When Your Business Needs Money: Angel Investors

    If you have a promising business that needs a boost, you may be able to put your faith in these wealthy investors.
  5. Personal Finance

    Seek An Adventure In Venture Capital

    Make a career out of chasing down the "next big thing".
  6. Personal Finance

    More Bonuses And Fewer Raises Affect Workers

    Companies are increasingly replacing salary increases with bonuses, much to the detriment of employees.
  7. Investing Basics

    Explaining the Volcker Rule

    The Volcker Rule prevents commercial banks from engaging in high-risk, speculative trading for their own accounts.
  8. Personal Finance

    5 Assets Only The Ultra Rich Can Afford

    Yacht? Private jet? Not that unusual. If you’re rolling in the big bucks, you can buy something much more interesting.
  9. Entrepreneurship

    How To Talk To Headhunters

    8 tips on forging a fruitful relationship with an executive recruiter.
  10. Investing Basics

    Diversification and Startup Investing

    Startup investments, considered a subset of venture capital, are subject to the same principles of diversification and portfolio management as publicly traded companies.

You May Also Like

Hot Definitions
  1. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  2. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  3. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  4. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  5. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
  6. Risk-Return Tradeoff

    The principle that potential return rises with an increase in risk. Low levels of uncertainty (low-risk) are associated with ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!