I must admit, I don't understand this equity thing yet. But it seems to me that working for a company is simply an investment. So it seems that there are three options for a company:

a) it is already making enough money to pay the devlopers a good salary b) it is not making enough money and takes outside investments to pay the developers a good salary = some outsider gets the equity c) they pay the developers with the equity they would have given to the outsiders in b)

Seems simple enough - in all cases but a equity has to be given away, so why not give it to the developers to begin with.