Option pool mechanics: pre-money vs post-money refresh.

Option pools refresh at every priced round. Whether the refresh comes from pre-money allocation or post-money allocation determines who pays for the dilution. The US default is pre-money refresh — which is why founders consistently see silent dilution they didn't realise they were absorbing.

Pre-money pool refresh (default)

The new investor demands a post-money option pool of, say, 12%. The refresh is allocated from pre-money — meaning founders and existing investors absorb the dilution before the new money goes in. A $15M pre-money with 12% post-money pool means the actual founder/existing-investor allocation is $15M / 1.12 = $13.4M, with $1.6M of pre-money valuation going to the pool refresh.

Effect: the new investor takes 16.7% of post-money on a $3M check ($3M / $18M post). Founders + existing investors absorb the 12% option pool refresh on top of their dilution from the new money. Total founder dilution at the round: roughly 26% — meaningfully more than the 16.7% the new investor took.

Post-money pool refresh (rare, founder-friendlier)

Alternative structure: the pool refresh comes from post-money allocation — meaning the new investor's stake is diluted by the pool too. Same $15M pre-money + $3M check + 12% post-money pool, but the pool comes from post-money. Founders absorb dilution only from the new money (16.7%); the new investor takes 16.7% × (1 - 0.12) = 14.7% effective ownership after pool refresh.

Effect: founder dilution drops from 26% to ~20% at the round. The 6 percentage point difference is material across multiple rounds. Why is this not standard? Because the new investor would prefer pre-money refresh, and they have the leverage. Founders only achieve post-money refresh when they have multiple competitive term sheets.

The 50/50 split (achievable middle-ground)

A common negotiated outcome when founders push back on pre-money refresh but don't have the leverage for full post-money refresh: split the pool refresh 50/50 between pre and post. Half the pool dilutes founders + existing; half dilutes the new investor. This is achievable when the round has 1-2 alternative term sheets but isn't fully competitive.

Pool sizing — the other negotiable variable

Beyond the pre vs post question, the pool size itself is negotiable. VCs default to 15% post-money pool refresh because they want flexibility for future hiring. Founders should push to 10-12% with a documented next-12-months hiring plan. The plan is the lever: without it, the VC's 15% anchor wins; with it, the founder's 10-12% has a defensible basis.

Cumulative effect across rounds

Pool refreshes happen at every round. Pre-seed: 12% refresh. Seed: 12% refresh (refreshing what was hired). Series A: 10-12% refresh. Series B: 5-10% refresh. Across 4 rounds with default pre-money refresh, founders absorb roughly an extra 15-20% of cumulative dilution from the pool alone — separately from the dilution from new money.

Practical recommendation:Model your cap table assuming default pre-money pool refresh at every future round. If you end up negotiating post-money or 50/50 splits, that's upside — model the downside case. Founders who assume post-money refresh without negotiating for it discover at term-sheet time that they've been miscalculating their projected exit ownership by 5-10 percentage points.