The only item that carries this sort of risk is Divine Rapier (and Gem of True Sight, though no DPS) as it's dropped on death. There are a few skills in Dota that can backfire and help the enemies if used poorly, like Duel, Unstable Concoction, Purifying Flames, Hook.
And a damage cap is probably fine, though I'd personally like to see it be really high. Like maybe start at 200 damage (on you) and increase by another +200 every time it's passed up to 1400 maximum. I think it's fine to have a high cap because there's several ways to mitigate Spirit damage and to dodge big countdown hits too (Divine Barrier, Pocket's Briefcase, Ethereal Shift, The Cube, &c.), so I think there's sufficient counter play. Besides the enemy has to punch you back for it to increment at all, so making it deal a 400+ damage right off the bat is probably important to make them want to toss the Potato back.