Rethinking Compensation for the Indian Startup Context

Founders in India are constantly told to “hire the best talent” — but what does that mean when you’re still pre-revenue, burning cash carefully, and trying to build something that lasts? At Malpani Ventures, we invest in founders who practice frugal innovation. That philosophy should extend to your compensation strategy too.

While global playbooks from Silicon Valley can offer lessons, India’s talent markets, investor dynamics, and cost structures demand a different approach. Let’s explore what compensation “rules” you can safely ignore and which ones early-stage founders should actually follow.

Rules to Break

1. Over-Giving Equity to Land Top Talent

Many Indian founders assume they must offer massive equity stakes to early hires because they can’t compete on salary. But as compensation experts constantly underline, equity is powerful because it’s scarce.

Keep total founder and early employee grants disciplined — for instance, your first 10 hires together shouldn’t exceed 10% of total equity. In practice, many Indian startups now follow even tighter equity discipline, reserving additional grants for future growth and performance.

More crucially, help candidates understand what their equity means. A two-page “Equity 101” explainer showing how value compounds as the business scales can build trust and attract believers.

2. Paying Top-of-Market Salaries Just Because You Can

Flush fundraising rounds often tempt founders to “match” the Tech Mahindras and Flipkarts of the world. But large salaries at an early stage distort incentives. Compensation should help build — not break — a sustainable business model.

At Applied Intuition in the US, for instance, equity created most of the eventual wealth, not inflated salaries. In India, a comparable discipline is essential: modest, fair pay plus meaningful upside. Talent that joins you for vision and ownership will endure longer than talent that joins for a paycheck.

3. Waiting for Annual Reviews to Adjust Pay

Traditional corporate structures thrive on review cycles. Startups don’t. If a team member in Chennai or Pune is delivering 10x value, reward them immediately — perhaps through a bonus, retention grant, or even small equity top-up. This reinforces loyalty and alignment in fast-moving teams.

Several Indian SaaS players like Zoho and Postman follow similar agile systems. Compensation flows dynamically with contribution, not calendar dates.

4. Copy-Pasting Big Tech Formulas

Companies like Infosys or Google can afford complex bands and formulaic structures. A 10-person startup in Bengaluru cannot — and shouldn’t. Build your own logic, grounded in two basics:

- How much cash can you afford sustainably each month?

- How can compensation balance fairness, transparency, and long-term ownership?

Reading up on behavioral economics and motivation psychology can help build your own defensible system — one that fits your scale and value system, not someone else’s.

Rules to Follow

1. Define a Clear Compensation Philosophy Early

Even at 10 people, you need clarity. Document what matters: how you balance cash versus equity, what market percentile you pay at, and how you reward performance.

For Indian founders, think in efficiency tiers, for example:

Level 1: Fresh graduate or entry-level operator; guided role.

Level 2: Mid-level independent contributor; 4–6 years’ experience.

Level 3: Senior/professional who can lead, mentor, or set best practices.

Attach salary bands early. Consistency prevents emotional confusion later, especially when one engineer joins from a corporate environment and another from a startup.

2. Use Contract-to-Hire as a Strategic Trial

Pre-seed and seed-stage startups in India rarely have the luxury to offer market salaries. Contract-to-hire or project-based partnerships — now commonplace post-COVID — offer flexibility and compatibility checks. Many top Indian engineers are open to fractional engagements if they see strong vision and execution quality.

This method also reduces hiring mistakes and allows founders to “pay for proof” before committing full time.

3. Communicate Transparently - Always

If your team doesn’t understand how they’re paid or how stock options work, expect constant negotiation and mistrust. Be explicit. Explain how you benchmark roles and how decisions are made.

Some Indian founders now host monthly “Ask Me Anything” sessions or maintain an internal Notion page explaining how salaries and equity are structured. Those 30 minutes a month can save weeks of confusion later.

4. Customize Incentives by Function

Not all roles should be measured by the same yardstick. A few practical calibrations:

Sales: Incentivize outcomes for example, higher incentives for prepaid contracts or renewals that improve cash flow.

Customer Success: Focus bonuses on retention, expansion, and Net Promoter Score (NPS) rather than just renewal targets.

Product/Tech: Tie bonuses or equity refreshers to feature adoption or performance metrics that lift core business KPIs.

The Indian Context: A Frugal and Fair Philosophy

Compensation doesn’t have to mean “competitive at any cost.” Instead, design a model that’s:

Fair: transparent, explainable, and tied to contribution.

Sustainable: aligned with your burn rate and funding stage.

Frugal: generous in ownership, disciplined in cash.

Scalable: simple enough to hold up as you grow from 10 to 100.

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At Malpani Ventures, we believe the best founders treat compensation as a tool to build culture — not just a transaction. When pay reflects purpose and ownership, startups don’t just hire talent; they build teams that endure.