VCs have no clue. They have money and therefore they are in a dominant position. Everybody around them (professionally) is trying to flatter them and convince them that they should invest in their project.

I had a few interactions with VCs (both professional and personal), where I didn't care because I wasn't benefitting from them. One of them was "an expert in CRISPR and blockchain" (WTF?) and... well I didn't need much time to see that he did not understand what a "hash" was. He was mostly an expert at repeating stories he had been told about how he would make a ton of money with the latest bullshit he didn't understand.

The truth is, it's like trading. You diversify the investments and hope that the economy goes up (respectively that one of the startups you invested in gets profitable). The only thing a VC has to do is verify that they don't invest in a fraud, but even that is hard given that they never understand the technology enough to say it's worth it (they often invest in shiny bullshit).

In fact, a certain amount of investment in frauds is acceptable and desirable; if you give £10m to 9 frauds who spunk it straight up the wall and to 1 true visionary who builds a unicorn, that's money well spent. Plus of course you can always hope that the fraudster is good enough to sucker the next guy so you can get out.

Per Matt Levine, the optimum amount of fraud is non-zero. Tune your detector too loosely or too tightly and you'll miss out.

An expert on crisps maybe XD? i'm not really sure about your last point on investing in frauds, i guess they only care if and when the fraud gets exposed, they might purposely choose to do exactly that given the right conditions though, it is a completely perverted and deranged system at this point.