Option Pools in Australia: 2025 Guide for Founders & Investors

Option pools have become a pivotal lever for startups and scale-ups across Australia, especially as the competition for tech talent heats up in 2025. Whether you’re a founder gearing up for your first funding round or an angel investor reviewing a term sheet, understanding how option pools work—and how they impact both equity and control—has never been more important.

What is an Option Pool?

An option pool is a reserved slice of a company’s equity, set aside specifically to grant stock options to employees, advisors, and sometimes contractors. These options are a promise: in the future, recipients can buy shares at a predetermined price (the ‘exercise price’), typically after meeting certain milestones or time-based vesting requirements.

• Purpose: Incentivise key hires, reward loyalty, and align interests with company growth.
• Typical size: In Australia, most early-stage startups allocate between 10%–20% of post-money equity as an option pool, but this can vary widely based on growth plans and sector norms.

In 2025, the Australian startup ecosystem is seeing larger option pools, especially for tech and fintech ventures, as founders compete for highly skilled workers amid ongoing talent shortages.

How Option Pools Impact Founders and Investors

The creation and sizing of the option pool isn’t just a talent matter—it’s a crucial negotiation point during fundraising. Here’s why:

• Dilution: When an option pool is created, it dilutes all existing shareholders. The key question: when does the dilution happen—before or after the new investment?
• Investor demands: Investors often require a startup to expand its option pool as a condition of funding, ensuring there’s enough equity to attract future hires. However, they’ll typically push for the pool to be created before their investment, shifting the dilution burden onto founders.
• Negotiation tactics: The size and timing of the option pool can significantly affect founder ownership. For example, a 15% pool created pre-money (before new shares are issued to investors) means founders are giving up more of their company than if the pool were created post-money.

For example, consider an Australian SaaS startup raising $3 million at a $12 million pre-money valuation. If the investor requires a 15% option pool pre-money, the founders’ share of the company shrinks more than if the pool were created after the investment. This detail is often hidden in the fine print of term sheets—savvy founders and advisors scrutinise it closely.

2025 Policy Updates and Best Practices

Australian policymakers have recognised the importance of employee equity in fostering a vibrant startup sector. The government’s 2022-2025 Employee Share Scheme (ESS) reforms have made option grants simpler and more tax-effective for both startups and employees:

• From July 2022, expanded ESS rules mean more startups can offer options with less red tape, including higher value caps before compliance obligations kick in.
• As of 2025, options granted under qualifying ESS arrangements are generally taxed only when exercised and shares are actually sold—making them more attractive for employees.
• Regulatory updates have clarified disclosures and reporting for option pools, giving founders more flexibility in structuring their schemes.

Best practices for 2025:

• Build a detailed hiring plan: Size your option pool based on realistic hiring needs over the next 2–3 years—not just investor requests.
• Benchmark: Compare your pool size and vesting terms with similar Australian startups in your sector.
• Communicate transparently: Clearly explain the value and mechanics of options to employees. Many staff still underestimate the potential upside (or risks) of equity.
• Negotiate pool size and timing: Push for post-money option pool creation if possible, or at least ensure the pool isn’t unnecessarily large.

Real-World Example: The Option Pool Shuffle

Take the case of a Melbourne-based AI startup that closed a $5 million seed round in early 2025. Initially, founders agreed to a 20% pre-money option pool at the investor’s request. However, after reviewing their three-year hiring plan—and consulting market benchmarks—they renegotiated to a 12% post-money pool. The result? Founders retained an extra 5% ownership each, and the company still had enough equity to attract top engineers.

This scenario is increasingly common in 2025 as founders become more sophisticated in understanding the true cost of equity incentives. Investors, meanwhile, are recognising that over-sized pools can dilute founder motivation—a lose-lose for all parties.

Conclusion

Option pools are a powerful tool for aligning startup teams and fuelling growth, but their design and negotiation require sharp attention in today’s funding environment. With regulatory settings now more founder- and employee-friendly in Australia, there’s room for startups to get creative—without giving away the house. Whether you’re raising your first round or planning a scaling spree, treat your option pool as a strategic asset, not just a checkbox for investors.