Well, yes. Is it 100x their thousandth? I don't know. Maybe!
But on the gripping hand, if you want a million dollars, don't start a start-up. If you want something with the expected value of $100,000, DEFINITELY don't start a start-up. If your goal in life is to get $1,000,000 and then you're going to be awfully happy, then for god's sake, go work at Google or Facebook or plenty of other biggish companies with good compensation. You won't get $1,000,000 all in one lump, but you'll get it, and on average, you'll get it sooner than a founder will.
Risk-adverse people should not be starting companies -- it's risky. And people who have made a solid decision to take a risky path should not bitch if their investors would also like the riskier, more profitable path.
At the point you are considered being acquired it might be:
100% chance of a million dollars: $1,000,000
10% chance of a billion dollars: $100,000,000
In which case I would go with the 10% chance because if I had run a startup and got it to be worth $1M, and then I fail I can probably make the $1M easy in the next thing I do.
The expected value estimate isn't sufficient. One should also estimate the risk of ruin more than "probably". If someone got to that point on friends and family money, and/or like Cisco using credit cards for financing, then another way to view this is 0% of bankruptcy vs. non-trivial chance of bankruptcy (including medical bankruptcy) and limited access to new seed money.
Of course, if your 90% case is to have a job paying 125K/year then the risk is very low. My point wasn't about you personally but the analysis that should go into this sort of calculation.
Hell yes there are lots of variables. It is a big decision.
This decision in it's purest form can be seen on the game show "Deal or No Deal" where they choose between an unknown value in a box and a $ amount from the 'dealer'. Even this simplified version of the problem gets the contestant on edge and they really have to think hard about it, talk to their spouse etc.
A gameshow is a sandbox. No contestant will end up bankrupt as part of the show. The worst possible case is winning nothing. While the contestant can be out travel costs and opportunity costs, those are not part of the game itself. Therefore I don't think it really includes a risk of ruin.
Now, if the expected value were awarded at each stage, and had to be reported as taxable income, and losing the show required that the contestant pay back the money but still had to pay the taxes, than that would have a real risk of ruin.
But, the probability estimates are usually bullshit. How do you know you have a 10 percent chance versus a 1 percent chance of being acquired? You don't, and you're kidding yourself if you think anything with that level of uncertainty is something you have a handle on. It's best to simply acknowledge that the billion dollar exit is far less probable than the million, and do the logic from there.
If founders and VCs could math, and if the probability estimates had real meaning, you would have to integrate over the probability and profit/loss curves to estimate future value.
Using single numbers like this is just story telling.
However - if you can spare the time, you can also play Corp Dev at their own game and see if you can get a firm offer.
As long as you're careful not to share IP or intelligence, a firm offer will tell you that your startup is worth at least 2-4X as much, could easily be worth 10X as much, and may be worth 100X as much (but probably isn't.)
That's useful information, even if you have no intention of selling.
I see no problem with stringing Corp Dev types along on that basis.
Ah so here we have a situation where VC and founder are not on the same page. What my grandparent said is valid from the VC's perspective. What you said is valid from the founder's perspective. I think it is important as a founder to have some understanding as to where VC's are coming from. :)
Expected value of a company with a 1% chance at a billion dollars: $10,000,000