Push Back If Your Seed VC Demands a 20 Percent Option Pool

Founders - if you're raising a seed round and the VC across the table says your employee option needs to be 20%, push back.

I've had multiple DMs over the past couple weeks from founders who are in the middle of negotiating their seed raises. One major sticking point - the employee option pool.

No surprise why VCs would push for a larger pool (before completing the round): it saves them from some dilution! But 20% is almost always too large a reserve for a company at this stage. I've resurfaced some data below from 28,000 cap tables on Carta that shows the median for seed-stage valuations is around 13-14%.

Especially with seed-stage startups growing headcount at a much slower pace than in prior years, the option pool should reflect the hiring needs of the next 2 years or so, with a little wiggle room. You can replenish the pool at the next fundraise as needed.

Obviously I still advocate for employees to be given generous equity grants - they're the bedrock of company success after all. But founders can do that while also minimizing their own dilution just starting out.

Thinking of doing a mini-series on the real data for the most common cap table sticking points for early-stage deals, let me know if you have topics you'd want covered below.

#cartadata #ESOP #employeeoptions #founders #startups