I'm not sure if it's bad that he invested in startups with that money. It's quite risky and if discourage it for that reason. If we implemented your proposal of capping the amount of shielded returns the problem would be gone. Most of this problem word be gone even with a very high cap in the tens millions.
On the other hand, are we optimizing for an edge case that gets media attention but is ultimately insignificant? Edge cases often make bad laws.
This isn't an edge case though. This is a common case. And it's frankly, a common abuse case. This stuff is famous for the being used by the Mitt Romneys and Pete Thiels of the world, but I know people who've bragged about doing the same thing on a much smaller scale. It just happens to work better the more money/influence one has.
All you need is a tax attorney and enough money to found a business to exploit this cheat. Start a business worth $5000, and move it into a Roth. Then shovel other investments into this new business and viola, you have a several million bucks parked in a tax-free, judgement-proof vehicle that can be passed onto your kids and grow until the end of the USA.
The longer we wait to fix this, the more it's going to distort our economy.
An asset cap is a simple solution and it hurts nobody who using this as an actual retirement vehicle. But there are other solutions as well that, again, don't hurt people who intend to take distributions in retirement but prevent abuse like this (minimum required distributions, like 401ks have); dissolution of the Roth upon transfer due to death of the owner, etc.
On the other hand, are we optimizing for an edge case that gets media attention but is ultimately insignificant? Edge cases often make bad laws.