Gabe Newell's phrasing makes it sound like Valve is basically offering a cash advance to some developers (similar to trade publishing, where authors get an advance check which they must then "earn out" before they can receive future royalty checks).

It's basically an interest-free loan which doesn't need to be paid back if the project is a failure (i.e. fails to "earn out" its advance). Quite generous, assuming Valve isn't taking any more than their usual cut of the Steam revenue as part of the arrangements.