Obviously small exits are more numerous, but most of the returns actually come from the larger exits. Of the first 200 yc companies, Dropbox is worth more than all of the others combined (at current valuations, maybe in five or ten years it will be airbnb or one of the others, but I expect that the general principle will still hold true). Therefore, the value of a high-priced startup is determined by estimating the odds that it is the next DropBox (or Google or Facebook).
I think he's saying that, because many first time entrepreneurs would happily take a $XX million offer to sell, most will sell early rather than holding out for a chance to be the next Dropbox. So even if the potential/expected value to be a billion dollar company is there, factors that are harder to calculate might ultimately determine exit value.
Interesting point. I view YC's strategy as playing the central limit theorem -- taking a high-volatility random variable (startup returns) and increasing the sample size until the sample mean tends arbitrarily close to the population mean.
YC has had a few small-exit founders come back though--do you hold that into consideration? In other words, would you fund an unambitious startup if it gave a promising entrepreneur a potential launchpad to go bigger next time?
