People don't know how to negotiate. Equity is the founder's only payoff, so they're going to be incredibly stingy about it, while playing up the intrinsic benefits.
Also, people don't know how to measure opportunity cost.
Also, people don't know how to measure opportunity cost.
There's also a lot of weight behind the "this is how it's done". 1% used to be very generous when founders had to roll the dice with 12+ months of their life to get seed funding and take big dilution when they did. Nowadays, it's cheaper/easier/faster to start a company, easier to get early stage funding, etc. It might make sense to reward employee #1 with a bit more equity... IF you can't pay them market rate (you buy equity by taking risk-- if you aren't underpaid, you aren't risking much beyond opportunity cost).
However, the biggest muff that people in this position do, is that they don't understand options and how they work, a little what this guy was saying. Take the options, why not, but treated as money and not sweat equity. You might not be able to get preferred shares and deep informations about the company, and you probably shouldn't, but you can ensure that whatever happens the money you put in vests without strings attached every 6 months until they pay you what you are worth.