I always recommend allocating more than the standard 10% for your employee stock option pool. 15% is a good starting point, here’s why:
1. Less Pain Later
In your later fundraising rounds, founder dilution will become an increasing issue. You can reduce the pressure you’re under from investors to allocate more stock for employees then, if you already created a large option pool at the beginning.
2. Early Employee Alignment
A large option pool allows you to be generous with your early employees and align your interests with theirs. I usually suggest the 1st 10 employees should get ~10% equity in total.
3. Executive Hiring
If you happen to find someone absolutely incredible, you’ll be immediately ready to give them an offer with a large equity grant, without any need for more legal work. Plus the equity doesn’t decay, you can always use it in the future.
Best of luck out there.
Sterling Road invests in idea stage and pre-seed B2B startups based in the US, Canada and UK.
