The offer me a paltry salary way below market rate, I counter offer with an offer above market rate for yearly employment (but below for an actual contract to build an app if I was charging hourly).

They call me and try to explain what the finances of a startup are like, etc, ask me to name my minimum, I refuse and tell them the ball is on their court.

Few hours later I get a new offer that is 275% of the original.

Going from original 4k/month 1099 towards 11k/month W2. 1% equity on both offers.

Note: there were 3 different offers that balance equity and pay (1k salary difference per 0.5% in the last offer). Equity vests fully at the end of the 3 month contract, they claim it's not common stock. Company believes in valuation of 30 to 150 million (I am unsure). A founder knows me from a previous company and also knew my salary.

What should I make of such a huge change? Is it just terrible negotiation on their part? What is the takeaway from this as a first impression?

While the new offer is something that can be considered, it has brought up a lot of questions. The initial offer was so ridiculously low that it shocked me. The market is Seattle btw.