Employee equity: How much should Indian startups give?

There is no universal percentage of equity that every startup should give its employees.

A founding engineer joining a five-person startup, a senior executive joining after Series A and an employee joining a 200-person company are likely to receive very different equity packages.

Yet one question comes up repeatedly when Indian startups introduce ESOPs:

How much employee equity should we actually give?

The answer depends on several factors, including the company's stage, the employee's role, when they joined, their level of responsibility, cash compensation, expected contribution and the company's wider equity strategy.

The important thing is to create a framework rather than picking a percentage because another startup offered it.

How much equity should a startup give an employee?

There is no standard ESOP percentage that applies to every employee or every Indian startup.

A useful way to approach the decision is to consider the employee's relative importance to the company's growth, the stage at which they are joining and the amount of equity the company can sustainably allocate over time.

For example, a startup might offer more equity to:

• an early-stage senior hire taking significant responsibility
• a highly specialised employee who is difficult to recruit
• a founding or early employee joining before significant company growth
• a senior executive expected to materially influence the company's next stage

A later-stage employee may receive a smaller grant because the company has already grown and the risk and potential upside associated with joining are different.

This means that employee equity is not simply a percentage of the company. It is part of the overall compensation and incentive strategy.

Don't confuse an ESOP pool with an employee's equity grant

This distinction is important.

An ESOP pool is the portion of a company's equity reserved for employee option grants.

An employee grant is the specific number of options allocated to an individual.

For example, suppose a startup sets aside an ESOP pool equivalent to 15% of its equity.

That does not mean every employee receives 15%, or that the company has already given employees 15% ownership.

The pool might be allocated across dozens of employees over several years.

If one employee receives 0.5%, another might receive 0.2%, and a senior executive might receive a larger grant depending on the company's equity strategy.

This is why questions about pool size and individual employee grants should be considered separately.

What determines how much equity an employee should get?

There are several factors founders should consider before deciding on a grant.

1. How early is the employee joining?

The earlier someone joins, the greater the uncertainty they are taking on.

An employee joining a startup before product-market fit, before institutional funding or before the company has built a large team may be taking considerably more startup risk than someone joining after several successful funding rounds.

Early employees may therefore receive larger equity grants than employees joining later.

Consider two hypothetical employees.

Employee A joins a five-person startup shortly after incorporation. They are responsible for building a critical part of the product and accept below-market cash compensation.

Employee B joins the same company several years later, after it has raised multiple rounds and grown substantially.

It would not necessarily make sense for both employees to receive the same equity grant.

The circumstances surrounding their respective hires are different.

2. What is the employee's role?

Equity allocation often varies by seniority and the strategic importance of a role.

A startup might have different equity bands for:

• C-suite and senior leadership
• senior individual contributors
• managers
• experienced specialists
• junior employees
• entry-level hires

This does not mean job title should determine equity automatically.

The more useful question is:

How important is this person's contribution to the company's next stage of growth?

A highly specialised engineer, for example, may warrant a significant grant even without a management title.

3. How difficult is the role to hire for?

Some roles are significantly harder to recruit than others.

If a startup is competing against larger companies for a highly sought-after technical or leadership hire, equity can become an important part of the compensation conversation.

For example, a startup may not be able to match the fixed compensation offered by a large technology company.

Instead, it might structure the package around:

Salary + benefits + ESOPs + long-term growth opportunity

The equity component can help make the overall proposition more competitive without requiring the company to permanently increase its cash cost.

4. How much cash compensation is being offered?

Equity should not be considered independently of salary.

A startup offering significantly below-market cash compensation may use equity differently from a company already offering highly competitive salaries.

For example:

Startup A: ₹30 lakh salary + relatively small ESOP grant

Startup B: ₹22 lakh salary + larger ESOP grant

The employee is evaluating the entire package, not just the equity percentage.

Founders should therefore think about equity as one component of total compensation.

5. What stage is the company at?

Company stage can materially affect how employee equity is structured.

An early employee joining a pre-seed company is entering at a very different point from someone joining a Series C business.

As a company progresses through funding rounds:

• its valuation may change
• its total share capital may change
• its ESOP pool may change
• existing grants may become diluted on a percentage basis
• future employees may receive different grant sizes
• the risk profile for new employees changes

There is no reason to expect the same equity percentage to remain appropriate throughout the company's entire growth journey.

Should early employees get more equity?

Often, yes, but not automatically.

Early employees can have a particularly significant impact on a young company.

They may help build the initial product, establish processes, make key hires, develop the first customer relationships or take on responsibilities that would normally sit across several roles.

Their equity can recognise both their contribution and the uncertainty associated with joining early.

Imagine a startup with eight employees hiring its first senior engineering leader.

The company expects this person to build the engineering team, establish its technical architecture and help take the product from an early version to a scalable platform.

That is a fundamentally different hiring proposition from bringing in a mid-level engineer once the engineering organisation already has 50 people.

The equity strategy can reflect that difference.

Should founders use a fixed percentage for every employee?

Usually, a rigid percentage is not the best approach. Instead, many startups find it more useful to establish equity bands or grant guidelines. For example, a company might define broad ranges based on:

How should startups think about percentages?

Percentage ownership can be useful, but it should not be the only number founders consider.

Suppose an employee is offered 0.25% of a startup.

That figure sounds precise, but several questions immediately follow:

• 0.25% of what?
• Is it calculated using current shares or a fully diluted basis?
• How many options does that represent?
• What is the vesting schedule?
• What is the exercise price?
• What happens if the company raises another funding round?
• What happens if the employee leaves?
• Is the employee receiving options or shares?

The number of options is equally important.

An offer saying 25,000 ESOPs means little without knowing the company's overall equity structure.

For example, 25,000 options could represent 0.25% of a company with 10 million shares, but only 0.025% of a company with 100 million shares.

That is why founders should explain grants using both the number of options and the relevant ownership context.

What does dilution mean for employee equity?

Future fundraising can change an employee's percentage ownership.

Suppose an employee receives options representing 0.5% of the company.

The startup subsequently issues new shares to investors.

The employee still has the same number of options, assuming nothing else about their grant changes. But the company's total number of shares has increased, so their percentage ownership can decrease.

This is dilution.

That does not automatically mean the employee's equity has become less valuable.

If the company raises capital at a higher valuation and uses that capital to grow significantly, the potential economic value of the employee's equity may still increase.

The key is to distinguish between:

Number of options: how many options the employee has.

Ownership percentage: how much of the company those options represent relative to the relevant share base.

Potential value: what those options could ultimately be worth, depending on the company's future performance and the terms of the grant.

These are related, but they are not the same thing.

A simple example of employee equity

Imagine an early-stage startup with a fully diluted share base of 10 million shares.

A senior employee receives options equivalent to 0.5%, or 50,000 options on that basis.

A few years later, the company raises another funding round and its total share count increases.

The employee still has 50,000 options.

Their percentage of the company may now be lower than 0.5%.

However, if the company's value has increased significantly during the same period, the potential value associated with those options could still be higher than when the grant was made.

This is why founders should avoid promising employees that a particular percentage will remain unchanged forever.

What is a reasonable employee equity range?

Founders will often search for a simple benchmark such as:

"Should I give employees 0.1%, 0.5% or 1%?"

Benchmarks can provide context, but they should not become a substitute for analysing the company's own circumstances.

A 1% grant could be meaningful for one employee and inappropriate for another.

The right grant depends on:

Company stage + role + seniority + expected contribution + hiring difficulty + cash compensation + existing equity structure

The same percentage can represent very different economic propositions at different stages of a startup.

For this reason, startups should treat market benchmarks as a starting point for discussion rather than a universal rule.

What about giving 1% to an early employee?

There is no rule that says an early employee should receive 1%.

Whether 1% is appropriate depends on the employee, the company's stage and the overall equity structure.

For a very early senior hire taking on a foundational role, a larger grant may be commercially reasonable.

For an employee joining later into a well-established function, the same grant could be unnecessarily large.

The better question is not:

"Is 1% the standard?"

It is:

"What grant is appropriate for this employee's role, stage and expected contribution, and can the company sustain that approach across future hires?"

How much equity should founders reserve for employees?

This is a separate question from how much to give an individual employee.

Founders need to think about the company's overall employee equity pool and how many future grants it needs to support.

For example, a startup planning to hire 30 people over the next 18–24 months should not allocate most of its available employee equity to its first few hires without considering what future employees may need.

The company should model:

• existing employee grants
• unallocated ESOP capacity
• planned hires
• expected senior hires
• future funding rounds
• other instruments that may convert into equity
• potential dilution

This is where the individual grant decision connects to the wider cap table.

Don't give away equity just because someone asks for it

Equity negotiations can become particularly difficult during hiring.

A candidate may say:

"I'd be comfortable joining if you give me 1%."

The founder should not decide based solely on the candidate's requested number.

Instead, compare the proposed grant with:

• other employees at a similar level
• the company's compensation philosophy
• the candidate's expected contribution
• the existing ESOP pool
• future hiring requirements
• the company's current ownership structure

Otherwise, a single negotiation can create inconsistencies that become difficult to explain later.

Don't make informal equity promises

This is particularly important at the early stage.

Telling someone that they will receive "0.5% of the company" without formalising the arrangement can create confusion later.

The company and employee should have clarity around what is actually being granted and under what terms.

An equity conversation should address the grant, vesting, exercise and relevant leaver provisions rather than relying on a verbal promise.

This is also why equity records should be maintained alongside the company's wider ownership records.

How vesting affects the grant

Vesting is another important part of the equity package.

A grant of 0.5% does not necessarily mean the employee immediately owns 0.5% of the company.

Options may vest over a period of time and according to the terms of the company's ESOP scheme.

This creates a long-term incentive.

If an employee leaves early, they may not have vested the entire grant.

For founders, vesting helps connect the equity allocation to continued contribution. For employees, understanding the vesting schedule is essential when evaluating an offer.

So when comparing two equity packages, don't look only at the headline percentage.

Look at the terms attached to it.

A practical framework for deciding an employee's grant

Instead of asking “What percentage should we give?”, founders can work through five questions.

Employee equity should evolve as the startup grows

The equity strategy you use when you have 10 employees may not work when you have 100.

As the company grows, it may need to:

• introduce clearer equity bands
• review existing grants
• make grants to new leadership hires
• replenish or restructure the ESOP pool
• model future funding rounds
• manage employee exits and exercises
• keep the cap table accurate
• communicate equity more clearly to employees

The objective is not to give everyone the same amount.

It is to build a system that remains fair, understandable and financially sustainable as the company grows.

Managing employee equity beyond the initial grant

Deciding how much equity to give is only the beginning.

Once grants are made, the company needs to keep track of vesting, exercises, employee exits, documents, new grants and changes to the wider ownership structure.

For an early startup, a spreadsheet may initially seem sufficient.

But as the number of employees, grants and funding rounds increases, keeping ESOP information connected to the cap table becomes increasingly important.

Vestd India brings ESOP management, cap table management and shareholder information into one platform, giving companies a centralised view of their equity structure.

Teams can manage grants, vesting, exercises, documents, reporting and ownership modelling while giving employees greater visibility into their own equity.

The right amount is the amount that fits your equity strategy

There is no magic number for employee equity in India.

A startup should not give 0.5%, 1% or any other percentage simply because it appears frequently in market conversations.