Option Pool Top-Up



Updated August 29, 2023
Angel Investing

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Now the option pool has to get topped up such that it will be 15% of the fully diluted shares after the dilutive effect of the preferred stock sale. Because the preferred stock sale will cause a 20% dilution (selling 20% of the company) across the board, the option pool must be 18.75% prior to being diluted by the preferred stock:

Figure 5: Cap Table Accounting for the Increase in the Option Pool

Shares or OptionsIssued and OutstandingFully Diluted
Convertible Note Investors1,448,29912.28%9.98%
Issued and Outstanding11,793,299100.00%
Option Pool Available2,721,53118.75%
Total Fully Diluted14,514,830100.00%

The stock option pool must be increased from 1,155,000 to 2,721,531 in order for each to reach 18.75% of the total fully diluted shares. From Figure 5 above, it is clear that all equity and option owners have shared the burden of the increase in the stock option pool when calculated on a fully diluted basis.

Sale of Preferred Stock

The terms of the stock sale stipulated that the preferred stock investors would own 20% of the company on a fully diluted basis, and that at that time the option pool would represent 15% of the company on a fully diluted basis. Those conditions result in the cap table represented in Figure 7 below.

Figure 6: Cap Table After the Preferred Stock Sales

Shares or OptionsIssued and OutstandingFully Diluted
Convertible Note Investors1,448,2999.39%7.98%
Preferred Stock Investors3,628,70823.5320.00%
Issued and Outstanding15,422,007100.00%
Option Pool Available2,721,53115.00%
Total Fully Diluted18,143,538100.00%
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