Investors like to require that an unissued option pool is in the pre-money valuation calculation when they put money into early stage companies. This post is about how to size the option pool. Many investors just want the number to be as big as possible. They'll put 15% into the term sheet and then let the entrepreneur negotiate them down from there and maybe if you are lucky you'll get them to 10%. But there is no logic in that kind of negotiation. It is just a price negotiation disguised as something else. It is bullshit. And I see investors engage in that kind of practice all the time. It annoys me.
Fred Wilson has been a venture capitalist since 1987. He currently is a managing partner at Union Square Ventures and also founded Flatiron Partners. Fred has a Bachelors degree in Mechanical Engineering from MIT and an MBA from The Wharton School of Business at the University of Pennsylvania. Fred is married with three kids and lives in New York City.