Before you answer their question, you need to understand it. As you suspect, it’s not a simple inquiry as to what it would take to get you to return, it is in fact an attempt to get you to return. It is the first step in a process that is intended to end with you working for them.
From a *Churchill quote site:
Churchill: "Madam, would you sleep with me for five million pounds?"
Socialite: "My goodness, Mr. Churchill... Well, I suppose... we would have to discuss terms, of course... "
Churchill: "Would you sleep with me for five pounds?"
Socialite: "Mr. Churchill, what kind of woman do you think I am?!"
Churchill: "Madam, we've already established that. Now we are haggling about the price”
They are trying to get you to agree in principle so they can then haggle over the price. Unless you want to haggle over the price, don’t go there. Use a simple “thanks for the interest, but I am not interested”.
While it may be true that you have your price, unless you think they can and will meet it, there’s no reason to mention it. If they reiterate that they want to know what your price is, stick to your answer “I’m not interested in changing positions right now”. Doing so isn’t going to upset them or burn any bridges because their actual question is: will you name a price that would make you want to return to work for us. And you are responding with a polite no.
If they are actually interested in getting you at any price they can afford, they will stop trying to get you on the cheap, and start making offers until you accept.
The above is from an IPS perspective, from a workplace perspective, asking you to name a price is tactic used to pay the lowest price. IMO if they really wanted you and weren’t concerned about cost, they would simply make an offer and if that didn’t work, increase it. Payroll is typically important in total, not individually. They could probably offer 2 or 3 times your current/former salary if they thought it was important enough. Or since it is a startup, equity.
*That the quote is actually from Churchill is disputed.