Employee option pool: how big it should be and who pays for it

Say you’ve just agreed a €4 million pre-money valuation with your first lead investor. Then the term sheet arrives, and one short line asks for a 10% employee option pool, “included in the pre-money”. It reads like housekeeping. In the example further down, that line is worth half a million euros, and every cent comes from the founders’ side of the table.

By the end you’ll know what an employee option pool is, how big pools really are at each stage, and who ends up paying for one. You’ll also see how a grant works (vesting, cliff, strike price) and what’s different in Italy, where most startups are SRLs with quotas instead of shares and innovative startups have their own tax rules.

What is an employee option pool?

An option gives you the right to buy a share later, at a price fixed today. That price is the strike price. The pool is the block of shares a company sets aside for those options before anyone receives them. Nobody owns that block yet. Investors count it anyway, because they read ownership on a fully diluted basis: every share that exists plus every share that could exist once options are exercised.

Why have one at all? Picture a senior engineer weighing your offer against a bank’s. You can’t match the salary. Equity is how you close the gap, and the pool is the budget for those promises. The same budget usually covers advisors and, later on, independent board members.

From the day it’s created, the pool sits on your cap table next to the founders and the investors. So its size is a negotiation. Not a formality.

How big should an employee option pool be?

Carta, the US equity management platform, publishes regular data on pool sizes. Its 2023 and 2025 cuts give slightly different seed figures, so it’s worth reading both.

Stage	Median employee pool	Carta data
Pre-seed	Often nothing yet: at the 25th percentile, companies hadn’t reserved any shares	April 2023
Seed	13 to 14%	April 2023
Seed, after the round closes	11.8%	15,000+ startups, last 5 years, January and April 2025
Series D	18 to 19%	April 2023
Unicorns	Just under 20%	April 2023

Two other findings from the 2025 analysis matter as much as the median. Most companies use only 60 to 70% of their pool before the next round. And Carta’s advice for seed companies is a pool of 10 to 12%, describing the 20% some investors ask for as “almost always too large a reserve” at that stage.

All of these are American numbers. Use them as a reference point when you negotiate in Milan or Turin, not as a rule.

A better way to size a pool starts from the bottom, and Carta recommends the same logic: cover the next two years of hiring, with a little room to spare. Write down every hire you expect in that window. Next to each name put a realistic grant, add the advisors, and total it up. If you land on 7%, a 10% pool is honest. If you land on 4%, a 15% pool mostly helps the incoming investor, for reasons the next section makes painfully clear.

Who pays for the pool: inside or outside the pre-money?

This is the clause most first-time founders read too fast. A pool can be created before the new money arrives, inside the pre-money valuation, or after it. Investors usually ask for the first version. Carta calls it the option pool shuffle: the new investor requires that the pool expansion “dilutes only the existing cap table”, not them.

An invented example makes it concrete. Two founders own 100% of their startup, 1,000,000 shares in total. An investor puts in €1 million at a €4 million pre-money valuation (€5 million post-money) and asks for a 10% pool, measured after the round.

	Pool inside the pre-money	Pool created after the round
Founders	70%	72%
New investor	20%	18%
Option pool	10%	10%
Price per share paid by the investor	€3.50	€4.00
Founders’ effective pre-money	€3.5 million	€4 million

Look at the left column. The investor still gets exactly 20% for its €1 million, and the pool’s €500,000 of value comes entirely out of the founders’ stake. Their real pre-money is €3.5 million, not the €4 million in the headline. Push the pool to 15% on the same terms and the founders fall to 65%, with an effective pre-money of €3.25 million.

You won’t often get the right column, since it costs the investor two points of ownership, and that’s normal. What you can do is argue about the size with your hiring plan in hand, count options you’ve already reserved but not granted toward the target, and go through the pool clause of the term sheet with your lawyer line by line. One more wrinkle, flagged by Carta: investors holding SAFEs convert in the round without taking the extra dilution, so the founders carry even more of the pool.

How do you grant options? Vesting, cliff and strike price

Every grant needs three things in writing: how many options, on what schedule, at what price. Here’s the usual sequence.

1. Vesting is how the options are earned over time. Italian plans usually spread it over four or five years, and some add an initial cliff, a period during which nothing vests. In the US the standard is four years with a one-year cliff: a quarter vests on the first anniversary, then 1/48 of the grant every month.
2. If someone leaves, the unvested part goes back into the pool for the next hire. Italian plans add leaver rules on top, as Orrick’s Italian team describes them: a good leaver (dismissed without cause, for instance) keeps and can exercise the vested options, while a bad leaver can lose vested and unvested options alike.
3. The strike price is what the employee pays per share on exercise. In Italy it can be set at the nominal value, which makes it a symbolic price, or in line with the valuation of the latest round.
4. Write it all into a plan the company formally approves, then give each person a grant letter with the number of options, the schedule and the price. Keep a register of every grant. You’ll need it the day an investor starts due diligence.

Stock options in Italy: SRL, innovative startups and alternatives

Most Italian startups are SRLs. An SRL has quotas, not shares, and under the Civil Code it normally can’t buy back its own quotas. That makes the American-style pool awkward to copy.

The startup laws opened two doors. Since 2017 (DL 50/2017, art. 57), every SME organised as an SRL can create categories of quotas with different rights, for example quotas without voting rights, and can carry out operations on its own quotas when they serve an incentive plan for employees, collaborators, directors or service providers. Those tools were first written for innovative startups. An innovative startup set up as an SRL can also issue participating financial instruments (SFP), which carry economic and even administrative rights but no vote in shareholders’ decisions.

Then comes tax. Under article 27 of Decree-Law 179/2012, income from shares, quotas, options or SFP that an innovative startup assigns to its directors, employees and continuous collaborators isn’t taxable, for income tax or for social contributions. The exemption holds only if the beneficiary doesn’t sell the instruments back to the startup or to whoever controls it. Sell them back and the income is taxed in the year of the sale. The ministry still lists equity-based pay among the benefits of the status after the 2024 reform.

Selling to anyone else is a different story: in Orrick’s summary, only the gain is taxed, at 26%. Consultants and professionals paid in equity, the so-called work for equity, get a parallel exemption under article 27(4), and the ministry’s guide notes they can even sell the shares back to the startup without losing it.

Outside these regimes, shares received through a plan count as employment income, measured on their “normal value”, as the same guide recalls. Another route is phantom stock: a cash bonus whose size follows the value of the company, without adding anyone to the cap table. Which tool fits depends on your company form, your status and who you’re rewarding, so take the question to your notary and tax adviser before you promise anyone a percentage.

And settle the founders’ own position first, with vesting, as our guide to the co-founder equity split explains.

Before you sign: an option pool checklist

• Write the hiring plan for the next 24 months, with a grant for each role, before discussing any pool size.
• Compare the total with the 10 to 12% Carta suggests at seed, and have an answer ready if yours differs.
• Is the pool inside the pre-money or after the round? Model both on your cap table.
• Count reserved but ungranted options toward the investor’s target.
• Start from four-year vesting with a one-year cliff. Put the good and bad leaver rules in the plan itself.
• In Italy, look at your company form and status first: SRL or SpA, innovative startup or ordinary SME. Then pick with your adviser between options, quota categories, SFP and phantom stock.
• Keep a grant register: name, number, schedule, price, date.

To see the pool inside a whole round, read how much equity founders give away at seed and our guide to raising capital in Italy. New to all this? The beginner’s map from zero to a first round shows where these terms come in.

This article is general information, not legal or tax advice. Rules change: check the current law or ask a notary or tax adviser before you set up a plan.