An Option Pool refers to a block of company equity that has been reserved for early investors or employees of a start-up company. This type of investment mechanism is often used by new companies that are still in their infancy and have not yet established enough revenue or cash flows to be viable without external capital or talent. An option pool can help attract the necessary resources needed for growth, allowing the start-up to expand its operations and increase its market share.The size of an option pool varies depending on the specific needs and objectives of each business, but typically ranges from 10%-20%of total shares outstanding at any given time. The decision as to who receives these options is usually made by either venture capitalists investing in the firm, angel investors providing seed funding, or even management itself if they wish to reward certain key personnel with equity incentives. In some cases, founders may also choose reserve part their own ownership stake as part an employee incentive program designed retain top talent over time while rewarding them with meaningful financial rewards down the road when they become vested shareholders in future rounds financing.In conclusion it’s important understand how an option pool works before making any decisions about investing money into a particular startup enterprise since this form compensation could potentially play crucial role attracting talented individuals who will ultimately contribute success your business long term basis. By having proper understanding what you're getting yourself into, you'll able make sound investments ensure get most out your hard earned dollars while helping promote healthy development young companies all same time.
