पाठशाला Pathshala · दल Dal, The team · Lesson 06 · Start

Hiring the first engineer when you cannot pay market

The first engineer is the hire that decides whether the product exists. Where to find them, how to test judgement instead of puzzles, and how to make an offer of cash below market plus options an engineer can check.

Pathshala, The Founder Library · 11 October 2026 · 10 min read

The first engineer is hired by a company that cannot pay what they are worth, to build a product that does not exist, for a founder who cannot fully judge their work. Every one of those is a disadvantage and the hire is made anyway, because the alternative is no product. This lesson is about making it well: the channel that works, the test that predicts, and an offer that a careful engineer can evaluate rather than take on faith.

It is written for the founder without a technical co-founder, and for the technical founder who needs a second builder before the money arrives. The arithmetic of the offer is the same in both cases; only the person interviewing changes.

What the first engineer is, and is not

The first engineer is not employee number one. They are the person who decides what the product is built from, how fast it can change and whether the next three engineers want to join. They will write the code the company runs on for years, usually alone, usually without a specification, and the decisions they take in the first ninety days about architecture, tooling and what to leave out will outlast most of the people who hire them. Treat the hire as closer to a founding decision than a staffing one, and price it accordingly.

This is why the puzzle interview is the wrong instrument. A puzzle tests whether someone can solve a bounded problem under observation. The first engineer’s job is to choose which problems to solve with no observer and an unbounded list. The test has to look like the job.

Where they come from

Harj Taggar, who was a YC partner and then co-founded the engineer-hiring marketplace Triplebyte, wrote the plainest guide to this and ranked the channels from his own data. Personal networks come first and he calls them the most important source by far: people you have worked with, then people they have worked with, approached by asking for lunch and a referral and following up. His advice is to spend most of the recruiting effort here for the first three hires, because someone you have already worked with is the only candidate whose behaviour under pressure you actually know.

Then, in order: hiring marketplaces, which are vetted but expensive and crowded; inbound interest from posting where engineers read, including the monthly hiring threads on Hacker News, and from writing technical content, which works best for developer-tool companies; and cold outreach, personal and by email, which Taggar warns needs two or three follow-ups per person and can take up to six months to produce a hire. At the bottom: recruiters, which he says are hard to make work for a first engineering hire, meetups, which only work for deeply technical or unusually charismatic founders, and agencies, which rarely produce early hires at all.

For an Indian founder the ranking holds and the network is wider than it feels. Former colleagues at the service companies, the people from the engineering college batch who went to product firms in Bengaluru or Hyderabad, the contributors to an open-source project you use. Make the list of forty names before you post anything. The posting is for the people the list does not reach.

A test that looks like the job

Three stages, none of them a whiteboard. First, a conversation about something they built: what it was for, what they chose and why, what they would do differently, what broke. A good engineer talks about trade-offs; a weak one talks about technologies. Ask what they left out and why, because the first engineer’s most important skill is deciding what not to build.

Second, a paid trial on a real problem from your backlog, two days, at a daily rate, with access to whatever you have. Not a toy. A thing you need done. Watch what they ask before starting, how they handle the part of the problem you did not specify, whether they tell you when the scope is wrong, and what they ship by the end of day two, including what they chose to leave rough. The output matters less than the judgement visible in it, and the two days tell you more than any number of interviews. Pay for the trial even if the candidate has a job; it is the cheapest due diligence the company will ever do.

Third, references, asked one question: would you hire this person again, for this kind of role, and what would you set up differently? A former manager who hesitates on the first half has answered. A non-technical founder should borrow a technical adviser for the first stage and the review of the second; the [solo founder lesson](/library/solo-founder-how-to-make-it-work) describes how to have one on hand. Then decide within forty-eight hours of the trial ending. Taggar’s second note, on getting offers accepted, puts speed first: engineers judge a company by how fast it responds, and losing a candidate to slowness is a failure, not a lucky escape.

What you are selling, since it is not the salary

Taggar’s observation is that candidates think differently from investors: the market size that excites a venture fund does not move an engineer, who wants to know what the hard product problem is, what they will learn, how fast they will grow and whether they will own what they build. Sell those, specifically. The first engineer owns the stack, chooses the tools, hires the next three and has the founder’s ear on every product decision. In a large company that is a decade away. Say so, and say what the trade-offs of the culture actually are, because sounding unprepared about culture is itself a signal.

Then put the whole offer in writing before the candidate asks: cash, the options as a number of shares and a percentage, the strike, the vesting and what the options are worth under two scenarios you are willing to defend. Taggar’s data from his marketplace is that compensation detail is a large factor in where people go and that engineers unfamiliar with equity need it explained. Most Indian engineers have never been offered options by a company that explained them honestly. Being the first is a competitive advantage.

Sizing the grant

Index Ventures’ Rewarding Talent handbook gives the seed-stage benchmarks most founders use: for US seed companies a senior engineer averages around 1 per cent of fully diluted equity, mid-level 0.45 per cent and junior 0.15 per cent, with a ten-person seed team adding up to about 5 per cent in total. Two adjustments follow from the same source. Grants of two to three per cent can make sense for a solo founder who needs several experienced skills early, or for a company hiring scarce specialists. And the further below market the cash is, the larger the grant should be, because the options are doing the work the salary is not.

In India the cash gap is usually the larger term. A product company in Bengaluru hiring an engineer with five years of experience may be competing against a salary it cannot approach for two years. The founder who offers 1.5 per cent and explains it is competing on a different axis from the one who offers 0.3 per cent and a speech about mission. The figure below is the explanation, built so the candidate can move the sliders themselves.

Read the figure the way the candidate will. The cash forgone is real and certain: four years at ₹10 lakh below market is ₹40 lakh they will not have. The option value is uncertain and depends on two things you control partly and one you do not: the grant, the dilution to come, and the exit. At the illustrative defaults a 1.5 per cent grant with 40 per cent dilution ahead is worth about ₹60 lakh at a ₹100 crore exit, a modest premium on the cash given up, and about ₹4.2 crore at ₹500 crore. The honest pitch names both numbers and the break-even valuation, and says which one you believe and why. An engineer who hears both numbers trusts the second.

An offer an engineer can check is worth more than an offer that sounds generous. The first engineer will spend four years checking your judgement; start by letting them check this.

How Indian ESOPs actually work

The grant is made under a scheme approved by the shareholders under section 62(1)(b) of the Companies Act, 2013 and Rule 12 of the Share Capital and Debentures Rules, which require at least one year between grant and vesting; the [vesting lesson](/library/vesting-and-the-cofounder-cliff) covers the scheme and the four-year, one-year-cliff schedule. Rule 12 excludes promoters and large directors from receiving options, but a startup recognised under the DPIIT notification may grant them for ten years from incorporation, which matters if the first engineer is to be treated as a near-founder with a director’s seat.

Tax falls in two places, and the candidate should hear both from you rather than from an accountant later. At exercise, the difference between the fair market value of the shares and the strike is a perquisite under section 17(2)(vi) of the Income-tax Act, taxed as salary with TDS by the company; for an unlisted company the fair market value is set by a merchant banker’s valuation dated no more than 180 days before exercise. On sale, the gain above that fair market value is a capital gain, with the FMV at exercise as the cost of acquisition. The problem for an employee of a private company is obvious: tax is due in cash at exercise on shares that cannot be sold.

The Finance Act 2020 fixed this for one class of company. An eligible startup under section 80-IAC defers the TDS on the exercise perquisite until fourteen days after the earliest of three events: forty-eight months from the end of the assessment year of allotment, the sale of the shares, or the employee leaving. Eligibility under 80-IAC needs the Inter-Ministerial Board’s certificate, which is a narrower status than DPIIT recognition and a separate application. If options are part of how you intend to hire, apply for it before the first grant and tell the candidate whether you hold it. A founder who can say the exercise tax is deferred is making a materially better offer than one who cannot, at no cost in cash or equity.

Set the strike at today’s fair market value from the most recent valuation or a merchant banker’s report, so the perquisite at exercise is the gain since grant and not the whole value of the shares. Write the number of shares, not only the percentage, into the grant letter, and state whether the percentage is of the fully diluted company before or after the round you are raising. Index Ventures’ guide warns that a verbal promise of equity is an IOU that ends in dispute. Do not make one.

The offer, and the week after

Taggar’s rules for the close are short. Present the whole offer at once, in writing, with the equity explained. Do not pressure a decision and do not set an exploding deadline; if you need urgency, an expiring joining bonus does the work without the threat. Have the people who met the candidate follow up with one specific reason each they enjoyed the conversation, and if you have an angel who knows the business, have them call. Ask about the candidate’s family and the decision-makers at home, because a partner’s view on a salary cut is part of the decision whether you discuss it or not. If they decline, ask why, in a way that invites an honest answer, and change the process before the next candidate.

Then the calendar. Day one of the search: the list of forty names from your own network, and messages to the first ten. Weekly: ten more conversations, every reply within a day. For each serious candidate: the build conversation in week one, the paid two-day trial in week two, references and a written offer within forty-eight hours of the trial ending. From the day the offer goes out: a touch every two or three days with something useful rather than a question about their decision. Expect the whole process to take two to four months through the network and up to six by cold outreach, and start it before the runway needs it to be finished, because the [runway lesson](/library/runway-how-many-months-you-really-have) applies to hires as much as to rounds.

Nothing here is legal, tax or investment advice. Rule 12, the Income-tax Act and the 80-IAC conditions change; check the current text before the first grant, and have the scheme and the grant letter drafted by someone who has done ESOPs for an Indian private company.