A lot of the startups that I see that try this are doing it because they really believe that they're bringing the value in this relationship - that they're going to be so successful, there's so much money here, they have SUCH a good concept, that the applicant should be grateful to get in on the ground floor.
Of course, 90%+ of the time they're totally wrong about everything about what they're bringing to the table, and in the other times, they'll often conveniently change things around to benefit them, like, "Well, you know, I know we said 4% of the company once we raised series A, but honestly, your contributions have not been what we expected, and so you really only are entitled to 1%"
To quote "The Spanish Prisoner":
Jimmy Dell: I think you'll find that if what you've done for them is as valuable as you say it is, if they are indebted to you morally but not legally, my experience is they will give you nothing, and they will begin to act cruelly toward you.
I got an offer last year from a company who offered me a 25% salary cut from my current salary and some negligible equity percentage, and then got all huffy when I tried to negotiate the salary. In their mind, the equity was worth so much money, they could pay me peanuts and I should still take the job. It was a huge turn-off. The guy basically told me to go off. "Why bother with startups, then?" he says. Completely missed the point of equity/salary.
Also, if the equity is worth so much money, why are they even offering it to you in the first place? You'd think they'd want to keep it all for themselves.
I had a conversation one time that went sorta like this (I don't remember the exact numbers):
Me: I'd rather be paid, say, $250k to do the work in a year and zero equity
Guy: But if the equity will be worth, say, $4 million in a year, why wouldn't you do the work for $25k?
Me: If the equity will be worth $4 million, why are you arguing over it - wouldn't it be better for you to pay me the $250k and pocket the remaining $3.75 million?
Guy: But the $4 million isn't guaranteed! That mightn't happen.
Me: My fucking point exactly!
And even after saying that himself, he STILL couldn't understand why I would turn down the equity...
Of course, 90%+ of the time they're totally wrong about everything about what they're bringing to the table, and in the other times, they'll often conveniently change things around to benefit them, like, "Well, you know, I know we said 4% of the company once we raised series A, but honestly, your contributions have not been what we expected, and so you really only are entitled to 1%"
To quote "The Spanish Prisoner":
Jimmy Dell: I think you'll find that if what you've done for them is as valuable as you say it is, if they are indebted to you morally but not legally, my experience is they will give you nothing, and they will begin to act cruelly toward you.
Joe Ross: Why?
Jimmy Dell: To suppress their guilt.