I misunderstood the idea. So ... it's like loan with your promised-equity as collateral, but you don't have to pay it back if the startup fails (or they have an small exit where you get no money).

If the start-up does not have cash reserves / cash generation to pay salaries, then the promised-equity has a very low value, so I'd expect the fee to be huge.

Let's suppose that they give $100. If we assume that half of the startup fails, if they want to break even you must return $200. If we assume that 90% of the startup fails or the employees don't get money, if they want to break even you must return $1000.