Even if you can't spend the rest of your life like this, and eventually have to get back to making money, you could easily go 10 years or so.
Sorry about making this slightly pointless comment :(
I don't really understand this whole "my odds of doing something really small are high, so f* you all, I'm doing that. F* VCs, f* the world, f* working a lot."
That's a terrible attitude if you actually are in this because you enjoy it and want to make a meaningful contribution to society, and not just make some petty money.
And I can already feel the downvotes. Everyone angry at Mr. Cynical because he crashed the "F* VCS!" rally.
In the words of 8Ball and MJG: "Yo stupid ass ain't gone live twice. If you do anything, do it big. If you do it small, do it big."
 There are two ways to do work you love:
(a) to make money, then work on what you love, or
(b) to get a job where you get paid to work on stuff you love.
50% odds of making $1 million = you have a 50/50 chance of walking away from the company with $1 million at some point -- not that you're guaranteed to walk away with $500K. You could just as easily walk away with $0.
So if your two options are:
1) 50% odds of making $1 million
2) 20% odds of making $20 million
...then you're more than twice as likely to make money on the first deal than on the second.
The $500k is only the "expected value". You have a 50% chance of making $1M, 50% of walking away with $0.
"then you're more than twice as likely to make money on the first deal than on the second."
And that's why I'd choose the first deal, even though the economically 'rational' thing to do is to go for the second, which has higher expected value.
His point still stands, of course, if you multiply the numbers by something. Make it a 50% chance of $10 million vs a 20% chance of $200 million, and I'd probably take the first deal.
using the same percentages for both thing is maybe a little confusing, and it's not explained terribly well. the numbers are really immaterial to his point -- going for short money on good odds is better than going for ridiculous money on long odds. keeneland teaches me the same thing every spring and fall at the meets.
here's the rationale:
$200k pays off all the debt i have: mortgage, car, everything, and should leave me with $50K in a working capital cushion. i would continue to work on something, because i'd go crazy if i didn't, but it'd likely be another startup idea of some sort. maybe work on student incubation.
$240k goes in a ladder of 1 year certificates of deposit at $20k each. at around ~4% interest, each one will yield an income of ~$800/month. i can leave that in the bank, or take it out as income. given that we're at record low interest rates, that rate can be expected to go up. it's not the best rate that could be earned, but it's a guaranteed rate.
my monthly expenses once housing and car payment are removed are right at $300. $800/month leaves me $500 for food and incidentals, assuming i don't have other income. no, it's not lavish, but it works. and every single penny i make from paying work i can then blow on hats.
of course, if i just keep rolling the yield back into the CD by retirement age (i'm thinking 55) each CD will be worth $70K, yielding 2800/month.
so in short, if my fuck-off-you money is $440k, i'm in pretty good shape for the rest of my life.
(You could buy inflation-adjusted bonds. Last I heard, though, they were running slightly negative yields because of all the other people who want to buy inflation-adjusted bonds.)
The other problem I see here is that this is a steady-state analysis. If you sustain one event that requires you to deplete your capital (like, say, a sudden surge in inflation, a sudden fall in interest rates or market values, an illness... or, god forbid, you decide to get married or have a kid or move to a nicer house) you will immediately suffer an income hit that will require you to go back to work. You should consider budgeting for such things.
Having said that: If you have the discipline to follow this plan, minor holes and all, you'll be in better financial shape than the vast majority of the planet.
(Obligatory investment-book recommendation: William Bernstein, The Four Pillars of Investing.)
any extra income from work (that i didn't blow on hats, mind you) would go into a managed fund, most likely an index fund. days like today though happen periodically, and individual stocks require the kind of detail work that isn't cost effective at those amounts. i make more money working than the growth i would see in the stocks having spent the same time on it.
all that said, if the current project gets picked up ...
Shouldn't that be "each one will yield $800/year"? That makes the total $800/month.
sorry if that was unclear.
It's better to just accept that complete independence is an delusion. I hope to make a lot of money one day, but I don't harbor the illusion that it will exempt me from interdependence with other people.