Per Matt Levine, the optimum amount of fraud is non-zero. Tune your detector too loosely or too tightly and you'll miss out.
But for fraud that hasn't happened yet don't worry about it and hope nobody figures out how to do it.
To be fair, many times founders are extremely convinced about their idea, they don't necessarily consciously sell bullshit to the VCs.
It just feels like what matters is to be very good at convincing VCs, not at building something real. When you're so good at getting money, of course eventually something will work (because you will be able to hire competent people to do the job). And then you will be called a "visionary", and people will say "we need HIM as a CEO because nobody else would be able to hire tons of competent people to build stuff with billions of dollars" :-).
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).