I've tried starting up, but discarded the idea after talking to the anticipated suppliers and customers. The idea was feasible, but the market wasn't big enough to put in the effort. So, my upside was very limited, while downside or opportunity cost was almost unlimited. Many of my batchmates from B-school are starting-up or have started-up, one has even sold his start-up and is working on next venture.
Having some experience, both academic and professional, in Finance, I would say this article tells one side of the story. The opportunity cost of the founders is obviously a minimum valuation level one should look at, but that's not all. This calculation is discounting risk to bare minimum. An entrepreneur will usually have a bucket of ideas to execute. Opportunity cost should also include the risk associated with not pursuing other ideas worth executing. If they pick a $1mn idea to execute while their other idea could have been $1bn, opportunity cost is $999mn! (obviously discounting will reduce it, but still a big number)
When someone raises seed capital, dilution is huge. Seed investors will ask for stake in the range of 30-40%. Series A and further rounds will add to this dilution. At the end, founders maybe left with a stake of less than 10%. Say your start-up hits a valuation of $500mn. Founders stake maybe worth $50mn. But this is an illiquid stake. Founders may have sold some stake during the funding rounds, but those will be small slivers and at lower valuations. Founders will get decent salary though, because they will usually be CXO level people and their salary marked to market. They will have taken some money out of their idea by now.
Now, investor will have his own opportunity cost which is independent from that of the founders. He will allocate a percentage of his portfolio to start-up investing. If he invests in 20, only 1-2 will be big, 2-3 may just return his capital while the remaining 15-16 will be dud. So, he should have enough capital to invest in at-least 20 start-ups in varied industries. It's better to invest as a group if you are a seed-investor. If you put INR 10 lakhs (assuming 10 investors in the group, and get 40% stake, so you individually will get 4%) in each start-up, you should have at-least INR 2 crores for a decent start-up portfolio. Otherwise, it's just betting.
I wanted to show some calculations, but this is not the right tool. Excel can help in analyzing various scenarios.