"I am interested in the position. I would like to explore how this offer can be more attractive, so that it makes it easier for me to make the decision." Communicate that you are interested in the position, provided that a reasonable compensation package can be offered.
Verbally Acknowledge Their Constraints
"I understand that you can not offer more than $120,000 for a Senior Product Manager." Or "I understand that you can not offer more than 0.5% equity for a Director level position." Make sure that they know that you understand their constraints. It shows that you are listening, and that you are willing to work around their absolute constraints.
Explore Areas of Flexibility
"I understand that you can not offer me more in annual salary, but how about the signing bonus? How about annual bonus? How about ____ ?" Understanding where the employer can be more flexible is the key to formulating a package that would be attractive to you.
State Your Constraints, Avoid Absolutes
Say something like: "It would be difficult for me to accept a position for less that $50,000 in annual compensation." instead of saying: "I can not accept a position for less than $50,000 annually." It is okay to let them know any specific constraints that you may have, but laying down absolutes may eliminate the possibility of gaining a lot more on some other dimension, all for a small loss in a particularly important dimension, such as annual salary in this case.
Offer solutions, Not Necessarily Specifics
"Recognizing your constraints, I think that offer looks good if we can work more on the signing bonus and the annual bonus." Help them, and yourself, make progress towards an acceptable outcome.