I think the general idea is that outright fraud like this is highly likely to get caught eventually, and leads to jail time, meaning it’s quite uncommon for oth

I think the general idea is that outright fraud like this is highly likely to get caught eventually, and leads to jail time, meaning it’s quite uncommon for otherwise smart people to make such idiotic moves. In other words it’s just not a big source of losses in the VC industry and so you don’t need to spend much effort guarding against it. (Especially considering that VCs expect most of their investments to fail for some reason or other.)