Dave definitely sees the world a little differently. I sincerely hope this business model works out well for him. On the one hand, it is a "diversify and capture the broad market" approach, but he has also done well in creating a brand for himself and 500Startups, making it an "exclusive" club to join (remember, you can't apply!), which means he ideally only gets incredibly qualified leads from his "mentors."
If markets are fairly efficient, in the long run he shouldn't make any extra money over just investing in a broad market index. But if they aren't efficient (and there is no reason to believe in the Angel space they are), creating a huge diversified portfolio of incredibly well qualified leads that he can incubate and nurture is a great portfolio strategy.
My worry is only the exit strategy and how he can prevent himself from getting diluted in the Series A; being only a minority share-holder, there is nothing that stops him from finding great companies, seeding them, and ultimately not being able to turn as great a profit as he would like because he can't liquidate and gets diluted.
And this is another brilliant part of Dave's model. He can rapidly apply lessons from the last 50-100 startups he funded to the next 50. He can rapidly collect metrics that will allow him to determine which companies are worth following on with.
His "sample size" is much bigger and therefore allows him to mine out statistically significant data about where to follow on.
Markets aren't efficient in any space ;)... (review the assumptions required for an efficient market, so see how reality violates all of them with consequences, or just look at the empirical, historical data; also see behavioral finance literature).
All existing investors/shareholders are diluted in new rounds, almost always. And all shareholders -- including investors -- in high-tech startups are minority shareholders (less than 50%), with the exception of single founders early on, typically. (Minority shareholders, investors especially, still have certain rights.)
I hope these notes help!