We can't compete with being a founder on equity.
Let's assume a pretty optimal funding scenario: YC took 6%, and the next 400k cost them 9%. Figure the employee stock pool is somewhere around 5%, leaving 80% to split between the two cofounders.
Dan may be awesome, but I don't really see a spare 10% or 20% in there for an employee. Dan may be awesome and talented, but you don't bring in people post-funding at that kind of equity stake, unless they've got some insane track record (and rolodex) that justifies it, and even then, getting the board to greenlight things would be a tough sell.
There's only so much room in the CAP table to hand out equity to employees.
What they can offer, and what is a big deal, is giving Dan the freedom to maximize his own potential, and to get paid for it.
That's not a small offer, and even with the small mountain of opportunity I have on the table right now, I would think very deeply about working at 42Floors if they approached me like this.
It's classy, and honest. I like that.
But if "Dan" (insert any developer here) gets them to their overall goal (exit?) than why shouldn't he get a piece of the pie.
You can have a lot of flexibility in hiring if you can offer your employees what they want, and that's not always money.
What do you personally consider reasonable?