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Having more people always adds overhead. It's not only software developers.
You don't need to have two developers working on the same piece of code, you can have each one working on a feature. And different teams can develop different projects/products. If a project takes 1 year to complete but you want an output of 2 projects per year, you don't need to overwork your current employees. You can hire a new team so there are 2 simultaneous projects being worked on at the same time.
I assumed that the VC is talking about small startups, the sort that have a dozen employees and just one project.
Can those be valued at 1Bn?
Ok, yes, there are these examples:
(disclaimer: I sourced these from gpt and have not fact checked them)