This argument makes sense, but aren't many large PE shops and Hedge Funds (which either acquire large companies whole, or make many small investments in thousands of companies) a counter example to this? Many have $5B+ valuations, often limited intentionally by a desire not to expand beyond 40-50 investment professionals.

Seems like there is no inherent law preventing a portfolio manager from becoming bigger than any single item in his portfolio.

What about Berkshire Hathaway? Though, it's a pretty focused portfolio.

Perhaps YC will acquire companies in the future?

BH is more like a conglomerate than an investment firm. They're just a super-disciplined conglomerate, unlike the random ones that gave the term such a bad name in the 1970s.

More to the point, Berkshire Hathaway itself had only 19 employees as of the 2006 letter.