Risk vs reward
Part of the problem is wages, but the flip side of that is potential rewards. If the startup you join goes well, the idea is that'll offset the crap wages you get at the start.
The problem comes when the developer looks at the startup idea, works out the chance of it being sold for big money, realises that chance is infinitesimally small, and goes to work for somewhere that can pay more and/or is somewhere nicer to be / easier to commute to etc.
Lots of developers I know are pretty risk averse. They are more than capable of seeing the flaws in the ideas behind most of the startups in Silicon Roundabout / Tech City, or indeed anywhere else. For the ones who don't mind a bit of risk, they can go freelancing or contracting and earn a hell of a lot more than £22-25K, especially if they contract in London. OK, that doesn't give you the pay out of being an early worker for Instagram, but very, very few businesses get sold for that sort of money, and a bright, capable developer is going to know that.
So you end up with a very small group of potential applicants who have good skills, and are willing to take the risk of working for somewhere that's likely to flame out in a couple of years, but if it just happens to take off, you probably (well, might) earn enough to pay back all the credit cards you've been living on because of the crap wages. If you're really lucky, you might get a bigger payout, and a chance to work for a nice big company like Yahoo or Google for a couple of years until you earn out your shares, or have the last of your motivation ground out of you by their management processes. Yay, sounds like a great deal!