When to Create an ESOP Pool

The Equity for Talent Conundrum

As an early-stage startup, you need to attract top talent to compete, but you can't afford the high salaries of established companies. Your most powerful currency is <a href="/startup-finance-glossary/what-is-equity">equity</a>.

However, giving away equity is complex. How much should you set aside? When should you create the pool? Making a mistake can lead to excessive dilution or leave you with not enough equity to attract future key hires.

Key Triggers for Creating an ESOP

• You are about to hire your first key employees beyond the founding team.
• You are preparing to raise your first round of funding (Seed or Series A), as investors will almost always require a pool to be created.
• You want to create a culture of ownership and align the long-term interests of your team with the success of the company.
• You need to retain critical team members who have been with you from the early days.

Our Recommendation: Create it Just Before Your First Fundraise

The most common and strategic time to formally create your first <a href="/startup-finance-glossary/what-is-esop-employee-stock-option-plan">ESOP pool</a> is immediately before closing your first priced funding round. Your lead investor will typically mandate a pool size (usually 10-15%) as a condition of their investment.

We help you with the entire process. Our corporate law team drafts the ESOP scheme documents, and our vCFOs help you model the dilutive impact on your cap table, ensuring you are making informed decisions about this critical strategic tool.