An ESOP pool is not a marketing gimmick. Done right, it becomes your #1 recruiting weapon in years 2–5. Done wrong, it becomes a lawsuit.
How large should the pool be?
Pre-seed: 8–12% is normal. Growth-stage: 10–15%. VCs will usually ask you to top-up to 10% at Series A. Create the pool BEFORE they ask — dilution hits founders less that way.
Vesting mechanics
Standard: 4-year vesting with 1-year cliff. Meaning: leave in year 1, get zero. Stay past year 1, get 25%. Every month after, 1/48 vests.
Strike price
Set it at FMV (fair market value) on the grant date. Use a merchant banker for the valuation certificate — Section 62(1)(b) makes this compulsory.
Tax gotcha
Two taxable events: (1) at exercise — perquisite tax on (FMV - strike), (2) at sale — capital gains on (sale - FMV at exercise). Employees hate the exercise-tax surprise. Educate them.