Latest / The Series A Show with Fexingo: Early-Stage Funding, Pitch Decks, and Startup Milestones / How Startups Are Using Rolling Options Pools to Attract Talent
Transcript
- Luna: So Lucas, we're seeing this huge rally in tech stocks—ARKK up over 7 percent in five days, Palantir up nearly 19 percent. But the startup hiring market is still brutal. How are early-stage companies competing? Lucas: They're getting creative with equity. The tool I'm hearing most about right now is something called a rolling options pool. It's not new in theory, but it's suddenly everywhere in Series A and seed rounds. Luna: I've heard the term. But refresh me—what makes it 'rolling' versus the traditional pool? Lucas: Sure. Traditionally, a startup sets aside, say, 10 percent of its fully diluted shares as an option pool at the time of funding. That pool gets granted out over the next two to three years, and when it's empty, the board has to approve a new pool—which usually means further dilution for existing shareholders. Lucas: A rolling pool auto-replenishes. The company sets a percentage of shares that will always be available for grants, like 12 percent of the ongoing fully diluted cap. As options are exercised or expire, new shares are added back into the pool. It's always full. Luna: So it's like a constant flow. That sounds simpler administratively, but doesn't it just spread dilution out rather than front-loading it? Lucas: Exactly right. The dilution is still there—you're just not taking a big hit at one moment. And that has advantages. When you're negotiating a Series A, a traditional pool is usually created out of the founder's shares, so it's a direct negotiation point with VCs. A rolling pool can be structured so the dilution happens gradually over time, which can help founders keep more ownership at the close. Luna: And employees? Does a rolling pool feel different from their perspective? Lucas: It can, especially for early hires who join after the initial pool has been partially granted. With a traditional pool, they might walk into a situation where most of the good shares are already allocated. With a rolling pool, there's always fresh equity available. The company can grant a meaningful option package without having to ask the board for a special increase. Lucas: And in this talent market—where a good machine learning engineer can command a quarter million dollar total comp—having that flexibility is a real weapon. It makes the offer competitive without needing to match Google's cash salary. Luna: But I imagine VCs have opinions. Doesn't a rolling pool make the cap table a moving target? Investors like predictability. Lucas: They do, and this is where the structure matters. Most rolling pools have a cap—a maximum number of shares that can be added over a period, say 2 percent per year. That gives investors a ceiling. And the pool is typically included in the fully diluted share count from day one, so everyone's ownership percentage is calculated assuming the pool is full. It's transparent. Luna: So it's not a blank check. It's more like a budget that refreshes annually. Lucas: Exactly. And the companies I've seen adopt it—especially in the AI space—say it simplifies the board conversation. Instead of coming back every six months to approve a new pool, you have a policy. The board's role shifts to oversight: are we granting in line with our hiring plan? Are we being fair across levels? Lucas: It also aligns with the trend toward continuous equity. Employees are starting to expect annual refresher grants, not just a one-time pile of options that vests over four years. A rolling pool makes that easier to deliver. Luna: And that connects to something we've talked about before—startups giving users equity instead of discounts. It's all part of a broader shift toward equity being an ongoing tool, not a one-time event. Lucas: Right. And the numbers in the market support this. Look at the big rally in names like Coinbase up 13 percent in five days, or Meta up 13 percent. That kind of wealth creation makes equity more attractive to employees. They're seeing real value. Luna: So if I'm a founder listening, what's the practical takeaway? Are rolling pools right for every startup? Lucas: No. If you're a very early pre-seed company with just two founders and no employees, a traditional pool is simpler. You don't need the machinery. But if you're planning to hire aggressively over the next two years—especially if you're in a hot sector like AI or biotech—a rolling pool can make your equity program more sustainable. Lucas: You also need a good cap table tool—like Carta or Pulley—to track it cleanly. And your legal docs need to be drafted carefully. Not all law firms are up to speed on rolling pools yet. Luna: What about the investor side? Have you seen any Series A firms actively pushing for rolling pools? Lucas: Some are. I know a few top-tier funds are now including rolling pool provisions in their term sheet templates. They see it as good governance—it means the company won't run out of equity at a critical hiring moment. And it prevents the 'we need to approve a new pool' fire drill that can delay offers. Luna: And the Together AI raise—$800 million at an $8.3 billion valuation—that's a company that's going to need a lot of talent. I wonder if they use a rolling pool. Lucas: They'd be smart to. At that scale, you're hiring dozens of engineers, plus go to market teams. A rolling pool avoids the constant board approvals. And with a valuation that high, even small option grants are significant for employees. Luna: One thing that gives me pause—dilution for early investors. If the pool keeps replenishing, early money gets diluted more over time than with a fixed pool, right? Lucas: It can, but it's usually capped. And the alternative—losing a key hire because you don't have equity to grant—is worse. Most investors I've talked to accept that. They'd rather have the company well-staffed and growing than save a few basis points of ownership. Luna: Fair. So the big picture is: rolling options pools are another tool in the 'we need to compete for talent without breaking the bank' toolkit. Alongside revenue share agreements, user equity, and all the other innovations we've covered. Lucas: Exactly. And it's part of a larger evolution: equity is becoming more flexible, more frequent, and more tied to ongoing contribution rather than just showing up early. The rolling pool is a mechanism that enables that. Lucas: And since we're talking about what keeps these shows going—this is actually a good moment to mention something. The reason we can dive deep into topics like rolling pools, without interrupting you with ads, is that a small group of listeners chips in monthly through buy me a coffee dot com slash fexingo. It's not a big thing, but it's what keeps the episodes coming. Luna: Yeah, and it really does make a difference. We hear from people who say these deep dives help them make better decisions. If that's you, and you want to help keep it ad-free, that's the place. Lucas: All right, back to rolling pools. One more nuance I want to hit—the tax implications. When options are granted from a rolling pool, the strike price is typically set at the current 409A valuation. That's straightforward. But because the pool refreshes, you might have employees with multiple grants at different strike prices. Luna: That sounds like a pain for tax reporting. Do companies have to track each tranche separately? Lucas: They do. But most cap table software handles it automatically. And the benefit—having a steady stream of equity to grant—usually outweighs the administrative overhead. Plus, employees get the advantage of potentially lower strike prices if the 409A goes up over time. Luna: So rolling pools are another sign that startup compensation is becoming more dynamic. We're moving away from the 'one-and-done' option grant model. Lucas: That's the takeaway. And if you're a founder evaluating this, talk to your lawyers and your investors early. Make sure everyone's aligned. A rolling pool isn't a silver bullet, but it's a smart tool for a fast-growing company. Luna: And for the rest of us watching from the outside, it's a reminder that the way startups build teams is evolving just as fast as the technology they're building. Lucas: Always. On that note, that's the show for today. We'll be back tomorrow with another deep dive.