As someone below commented, it seems more likely that the VCs are stealing from their investors.
For example, say you were in charge of a private equity fund with a close overlap of executives with a government bank. When investments go well you put them on the PE funds books. When they go poorly you put them on the bank's books. The bank gets a few government bailouts in the process. You now have billions in dirty funds in your PE fund that need to be laundered through investments. A few additional degrees of separation here can be very useful. I've seen this exact situation play out and met some of these guys while trying to do business in Africa.
Do you think people are bringing briefcases of cash on the scale of that many millions to a nail salon?
And yes, there are also startups which produce only 'tech demos' of potential new business lines because they've accepted the product they were originally going to buy won't work, but their founders aren't ready give up yet, but not easy for them to convince investors to follow along for 5-7 years without revenue even if they're really good liars...