If the VCs continue to invest in poorly conceived and doomed ventures then they will lose money and eventually fail once they've lost investor confidence. There's evolutionary pressure at play here. VCs are incentivised to take risky investments with potentially high returns; but there is a limit. In a very real way we're exposed to the outliest out the outliers here in SV. It should eventually get better. However, nobody said that evolution, or capitalism for that matter, was efficient; so it may be quite a long time.
It's true that VCs that invest in utter nonsense will eventually be eliminated, but I think most VCs who never invest in a success invest in enough doomed models that survive until IPO, (often with built-in failures like a model of exploitation that requires obscurity.)
The highs and lows of tech average together well enough to satisfy Wall Street and then have huge profits for some that VCs that find and hold good investments, and more VCs that feed off a constant influx of sucker investors.
