Well, I still see offers of less than 0.1% stock to the first 20 or even first 10 engineering hires, so I think we shouldn't pretend that startups are doing all they can to compete with offers from FAANG. If the stock compensation was more like 1-2% for the first couple engineering hires, 0.5-1% for the next couple, 0.3-0.5% until 10-15 hires, then the stock compensation would probably start to compete with FAANG even after factoring in the possibility of the startups going bust. So about 10% of stock would go to the first 20 engineers, but that seems pretty reasonable to me. Unfortunately it seems founders want to keep that to more like 2-3% total, and that's why they can't attract talent in my opinion.

Also, TERMS of the stock grants also matter. For example, if the options can be held for 10 years after departure from the company, that would make them more valuable. For the first 1-5 hires it may not make a difference because they'd probably do an 83b and buy all their stock right away, but for the next 5-15 hires the Series A price may still mean they'd need to put several or tens of thousands into their options, which not everyone can do.

Startups could also attract talent by offering atypical work hours (not arriving during rush hour traffic would be nice) or many other things, but they typically aren't willing to do that... for whatever reason. I've personally offered to work at startups in the evening for about 50% of my hourly-equivalent rate for 20 hours per week (so 1/4 of a salary for 1/2 of an employee), and they've not been interested. Until companies are willing to be unconventional to attract talent, I say the cries of "talent shortage" are not genuine. If there was a shortage, they'd be willing to be more flexible than most of them are.