ESOP pool size in India: how much equity to set aside at each stage

An ESOP pool of about 10% of fully diluted shares is the most common starting point for Indian startups, according to Indian advisers. Published guidance for Series A ranges from about 7% to 15%, and advisers disagree on what happens after that. The right size for your company covers the next 18 to 24 months of hiring and refresh grants for your current team. Anything larger dilutes the founders without a reason.

What is an ESOP pool?

An ESOP pool is the set of shares a company reserves for employee stock options. Founders and investors usually describe it as a percentage of the company's fully diluted shares. Fully diluted means every issued share plus every option, warrant and convertible note that could turn into a share.

The pool has two parts:

• Granted options, already promised to employees through grant letters.
• Unallocated options, still available for new hires, promotions and refresh grants.

Options that lapse, for example when someone leaves before their options vest, usually go back into the pool.

Creating a pool does not cost the company any cash, and it does not hand anyone shares on day one. It reserves room to grant options later. The dilution is still real, though. Investors count the whole pool, granted or not, when they work out ownership.

You will also see the term "option pool", which global and US sources tend to use. In India, "ESOP pool" is more common. Both mean the same thing.

ESOP pool vs sweat equity

Sweat equity is different. It means shares issued outright to directors or employees, usually at a discount, in return for know-how or work already done. It falls under Section 54 of the Companies Act and has its own limits. ESOPs are options that vest over time, and the employee pays an exercise price to turn them into shares. Most startups use ESOPs for their wider team and keep sweat equity for a few specific cases.

How big should an ESOP pool be?

There is no legal or standard number. In practice, three things set the size:

1. Your hiring plan. The pool should cover the people you will hire before your next funding round, which is usually 18 to 24 months away.
2. Your current team. Early employees will need refresh grants once their first grants vest.
3. Your investors. A lead investor will often ask for a minimum pool size as a condition of the round.

As a starting point, CFOmatrix, an Indian CFO advisory firm, describes 10% as the most common starting pool for Indian startups. Blume Ventures, an Indian early-stage fund, says early startups with two co-founders often set aside 10%.

ESOP pool size by stage in India

Indian advisers broadly agree on the seed stage but split sharply on later stages. Some expect the pool to keep growing as a percentage. Others expect it to shrink as the company's value rises. Their figures were also published years apart, for different kinds of companies, so treat them as a range of views rather than a rule.

Caption: Pool size as a share of fully diluted equity, compiled from each adviser's published ranges.

The split reflects two real patterns. US startups tend to grow their pools as they scale. Carta's data on US startups shows seed companies reserving about 13–14% for employees, rising to about 18–19% by Series D. Many large Indian startups, by contrast, keep a smaller percentage but grant large rupee values.

ESOP pool size at large Indian startups

A pool that looks small as a percentage can be worth a great deal at a large company.

• Zomato (now Eternal) asked shareholders in May 2024 to approve a new pool of about 2% on a fully diluted basis. It was worth roughly ₹3,500 crore, to be granted over five years.
• Razorpay's co-founder Shashank Kumar said in January 2026 that the company has always kept a pool of "a little over 3%". It refreshes the pool whenever it is used up. About 83% of Razorpay's employees hold ESOPs.
• Zepto's ESOP trust held 7.46% of the company on a fully diluted basis, according to its updated draft IPO papers filed in June 2026.
• Capillary Technologies more than doubled its pool to 9.04% of its share capital in June 2025, shortly before filing its draft IPO papers.

So judge a pool by what it can pay for, not only by its percentage.

How to calculate your ESOP pool size

Benchmarks tell you whether you are in a normal range. Your hiring plan gives you the real number. Work from the bottom up in four steps.

Step 1: list the hires you need before your next round

Use the same hiring plan you show investors. Group the roles by level: leadership, senior, mid-level and junior.

Step 2: give each level a typical grant

Each level gets a typical grant, expressed as a percentage of the company. The grant table in the next section shows common Indian ranges.

Step 3: add refresh grants and a buffer

Add grants for your current team, whose first grants will start running out as they vest. Then add a buffer of about 20–25% for hires you have not planned, counter-offers and promotions.

Step 4: subtract what is already free

Count the unallocated options in your existing pool. The difference is the top-up you need.

Worked example: a pool for 30 hires

Say a startup plans 30 hires over two years. The numbers are made up to show the method.

1. Two VPs at 0.6% each = 1.2%
2. Six senior leads at 0.25% each = 1.5%
3. Twelve mid-level hires at 0.1% each = 1.2%
4. Ten junior hires at 0.03% each = 0.3%
5. Refresh grants for the current team = 1.0%
6. Subtotal = 5.2%
7. Add a 25% buffer = 6.5%

If 2% of the existing pool is still unallocated, the company needs a top-up of about 4.5%. Every percentage point maps to a hire, which makes the number easy to defend in front of an investor.

How many new shares does the pool need?

For a company creating its first pool, this formula gives the number of option shares needed for the pool to equal a target percentage after it is created:

New pool shares = existing fully diluted shares × target % ÷ (1 − target %)

For example, a company with 1,00,000 fully diluted shares that wants a 10% pool needs to create about 11,111 new option shares: 1,00,000 × 0.10 ÷ 0.90. After that, the pool is 11,111 out of 1,11,111 shares, or 10%.

How much equity to give early employees

Early grants feel cheap because the company is small, which is exactly why they need care. These are common Indian ranges for a single new-hire grant at an early-stage company. The last column shows what each range would be worth on paper at a ₹100 crore valuation.

Caption: Grant ranges adapted from Treelife's September 2026 guidance. Paper values are illustrative, at a ₹100 crore valuation, before tax and dilution.

Blume Ventures suggests thinking about your most critical early hires in terms of the pool, not the company: each might get about 2–3% of the pool.

The option pool shuffle: who pays?

This part of a term sheet is easy to miss.

When an investor offers a pre-money valuation, the term sheet often asks for the pool to be created or enlarged before the money comes in. The pool then sits inside the pre-money valuation, so only the existing shareholders are diluted by it. The incoming investor is not. This is known as the option pool shuffle.

A simple example: an investor offers ₹20 crore at an ₹80 crore pre-money valuation, so the post-money valuation is ₹100 crore and the investor owns 20%. The term sheet asks for a 10% pool, created pre-money. After the round:

• The investor owns 20%.
• The new pool is 10%.
• The founders and earlier investors own 70%.

The headline said ₹80 crore, but the existing shareholders' stake is effectively valued at ₹70 crore, because ₹10 crore of the pre-money is the new pool. According to Treelife, Indian investors nearly always expect the pool to be created or enlarged first, so its cost falls on the existing shareholders.

How to negotiate pool size with investors

You will not always win this point, but you can reduce its cost.

• Show the bottom-up number. A pool sized to a real hiring plan is hard to argue with. A much bigger pool is hard for an investor to justify.
• Count the unallocated options. What is still free in the current pool reduces the top-up.
• Ask for a post-money pool, or a split. A pool created after the investment dilutes the incoming investor too.
• Agree to top up later. A smaller pool now, with a commitment to top up at the next round, keeps more ownership with the founders today.

When should you top up the ESOP pool?

Top up when the unallocated options will not cover your next 12 months of planned grants. That usually happens at one of four moments:

1. At a priced funding round. Investors will ask anyway, so plan it on your terms.
2. Before a big leadership hire. One CXO grant can use a large share of a small pool.
3. When refresh grants come due. First grants usually vest over about four years, and keeping those people needs new grants.
4. Before an IPO. Capillary and Zepto both enlarged their pools around their IPO filings.

Each increase needs board and shareholder approval, so increase the pool in meaningful steps rather than small, frequent ones.

How to create an ESOP pool in India

For an unlisted Indian company, ESOPs are governed by Section 62(1)(b) of the Companies Act, 2013 and Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014. The main steps and rules:

• Board approval first. The board approves the scheme and recommends it to shareholders.
• Shareholder approval. Shareholders approve the scheme, including the total number of options. Rule 12 calls for a special resolution. Private companies may be able to use an ordinary resolution under a 2015 exemption, but advisers usually recommend a special resolution anyway. Increasing the pool needs a fresh shareholder resolution.
• No fixed maximum. The rules do not set a maximum pool size for unlisted companies. They require the total number of options, and the maximum per employee, to be disclosed and approved.
• Large individual grants. Granting one employee options equal to 1% or more of the issued capital in a single year needs separate shareholder approval.
• Minimum vesting. There must be at least one year between the grant of an option and its vesting.
• Who can get options. Employees who are promoters or part of the promoter group, directors who hold more than 10% of the equity directly or indirectly, and independent directors cannot get ESOPs. DPIIT-recognised startups are exempt from the promoter and 10% limits for up to 10 years from incorporation or registration.

Companies can run an ESOP scheme directly, issuing new shares when employees exercise, or through an ESOP trust. In the trust route, the company funds a trust that holds shares for employees and can also buy them back when employees want to sell. The Companies Act allows this, with limits. The company's support is capped at 5% of its paid-up capital and free reserves, and a registered valuer must price shares of an unlisted company.

Listed companies follow SEBI's share-based employee benefits regulations instead. Since September 2025, SEBI also lets founders who are named as promoters in IPO papers keep ESOPs granted at least one year before the draft papers are filed. Once named as promoters, they cannot receive new grants.

Common ESOP pool mistakes

• Copying any single benchmark. Published ranges differ widely, and US pools often grow to 15–20% or more at later stages.
• Letting the investor set the size. Start from your hiring plan, then compare it with the benchmarks.
• Forgetting refresh grants. A pool built only for new hires runs out as first grants vest and refresh grants come due.
• Giving too much to the first hires. Early grants feel cheap when the company is small, but they become very valuable if it grows.
• Quoting ownership without the pool. When you tell a candidate or an investor what someone owns, use fully diluted numbers that include the whole pool.

This article is general information, not legal, tax or investment advice. Speak to a company secretary or lawyer before you create or change an ESOP pool.