I agree with option 1. But in order to calculate how much your salary is worth in equity, you'd need to estimate the worth of the company at some point in the future, your hourly rate and the risk that is involved. In his case, if there is already funding, you could take the value of the company at the time of funding as a benchmark. If they got funding from a well established angel investor or VC, you also have an idea of the odds for success (1 in 10?). What's the going rate for a full time developer? Just multiply et voila... You know how much equity you want for your first year of work.