[tech_nofounder]

  If they are learning and developing, why can't you
  treat them as a very junior developer, help them
  develop their skills, and eventually they will
  become a useful asset to your team.

This has been my attitude so far, and my original title (before being edited) had "[How]" in brackets: I'm not at all sure what to do. But the alternative strategy, the optimistic, mentorship one you outline, hasn't been working.

  They must have skills of some kind if they got the
  product to a point where they could raise money
  and hire others in the first place?

It's absolutely true, and I would never advocate anything but generous treatment of the employee. But not meeting today's expectations (not just mine, the whole team's) also matters.

  As for the equity issue, even if they do get fired,
  that doesn't mean their equity is up for grabs to
  award to new engineers. So it probably won't solve
  your issue their.

Very true, and as others have stated legal matters around termination can make this very complicated.

I bring it up more to worry about simmering resentment from e.g. peers. I'm happy with my compensation, but I worry what an impression of "early, ineffective dead weight" can have on newer recruits. It's something I've seen earlier in my career.