And of course, there's no downside for the investors. If you backed a con artist, you're not culpable - you're a victim.
Why wouldn't investors give these people money? It's not like being an investor implies having morales, all they care about is making money whether it's legal or not and luckily for them crime not only pays but it's legal now too.
Most VCs have no idea how to accuratly judge startups based on their core merit, or how to make good decision in startups (though they may think they do), so instead they focus on things like "will this founder be able to hype up this startup and sell the next round so I can mark it up on my books".
I can believe in that. But just a couple of years ago it was clearly happening because the VCs wanted those people to sell the companies into some mark and return real money to them. I wonder when did the investors became the marks?
The hardest part of startups is probably the making good decisions part. To be a good VC you need to be better at founders at judging startup decisions, AND you need to be good at LP deal flow AND you need to be good at startup deal flow. LP deal flow has to come first (otherwise there is no fund), and because of zirp a lot of VCs got funds up without good startup deal flow or the ability to judge startups well.
In other words it's hard to be good a VC too, but for a while it was artificially easy to be a bad VC.