I almost stopped reading after inferring that he believes being the CEO of a startup that your interviewer has never heard of, and for which "traction" probably can't be defined in less than 10 minutes of conversation, is a credential that will improve your chances at another company.
Selling a company is an accomplishment. Usually. (Sometimes that "sale" is a marketing fiction, but, whatever). Most entrepreneurs --- in fact, most of the entrepreneuers that get traction --- don't manage to sell their companies.
I started a hosted email company in high-school, and while it never really went anywhere, it was the single greatest thing on my resume.
It made me stand far above most other applicants, proved that I could start and complete something interesting, and gave me a lot of real-world experiences to talk about in an interview, as opposed to the standard "In this database class I took..."
I suspect that for the vast majority of failed startups, the cost is mostly pride and the lost wages of having a steady job for that 2-3 years. The benefit is whatever experience you gain from that time period - people will judge you based on your skill level and what you've learned.
There's also a much-worse case where people take on $100ks of debt, lose their friends, lose their home, get divorced, and waste 10 years of their life on a venture that was doomed from the start. This outcome is fairly easily avoided by keeping perspective and constantly re-evaluating whether the potential upside merits the risks you're taking, but it does happen to some people.
There is an astronomical difference between being a CEO of a 2-5 man company that barely has any clients (if that much) and a CEO of a large company with a massive number of clients, employees, and large revenues. It's like comparing a "lead" accountant for a 5 person non-profit with a lead accountant that took Google to IPO. To quote Jules from Pulp Fiction, "ain't in the same f#$% ballpark, it ain't the same league, it ain't even the same f#$% sport."
Note for instance the opening, "Recently I met with parents of the founder of one of our portfolio companies." :) How many times would PG have met with the parents of a YC founder?
Money during bootstrap phase would be from parents -> A middle-class kid fresh out of college, could be easily supported by his parents for 3-5 years, staying at home, with no additional expenses. Given many parents support grad school, supporting their kids while they're working on a startup would not be a stretch (if they agree with this article or see the fire in their kids).
If the startup goes anywhere but dead, (in a year or so) the founders would have got a reasonable amount of independent mgmt experience, ability to startup and deliver, and exposure to industry far greater than their peers.
Now in India there is a severe lack of middle management capable of independent decision making, project level leadership, and delivery. There is also a shortage of folks who can think at a product and market level, as opposed to a customer/service level. A guy coming out of a startup (even failed) who can demonstrate these skills would be quite better than his peers who may have far more experience in sw development.
If the startup fails within a few months or years, worst case, an MBA may be in store, although it would certainly not be as exciting :)
Many of the guys who are doing this would probably be of upper-class, or upper-middle class, whose families would certainly encourage such risk taking.
However, getting traction and press attention are the hardest bits. Also, how much of your own money do you lose before quitting?
That said, even if you fail, if you had a job before, the chances are you could at least do the same thing again after.
Still it should be considered that the author is a VC. Hence it's in his utmost interest to portray entrepreneurship as quasi risk-free. The more people decide to start a company, the bigger his choice while selecting a company for funding. Reminds me a bit of 37signals who is kind of doing the same thing, in order to promote their applications.
