Theranos scammed wealthy investors but also hurt a lot of other people in the process, namely patients who received bad tests and employees who have a black mark on their resume.

In an ideal world maybe investors would have done more DD, but there is a lot of money out there. Many investors likely did turn them down, since their funders didn’t include many traditional SV VCs.

It was ultimately the WSJ that broke the story. Even if investors find something during DD, they have strong incentives (libel law) not to share it.