For years, venture capitalists have worshiped at the altar of the “visionary founder”—the charismatic disruptor who could bend reality, raise billions, and scale at breakneck speed. But in 2025, the tide has turned. From Silicon Valley to Bengaluru, investors are no longer turning a blind eye to unethical behavior. They’re calling it out, pulling funding, and in some cases, demanding resignations.

The Breaking Point: From Theranos to Byju’s

The unraveling began with Theranos, where Elizabeth Holmes’ charm masked a house of cards. But the real reckoning came later. In India, Byju’s—a darling of edtech—faced allegations of financial misreporting and toxic internal culture. In the U.S., Nikola’s founder, Trevor Milton, was charged with securities fraud after staging fake product demos. And who could forget WeWork’s Adam Neumann, who walked away with $1.7 billion while his company imploded?

These weren’t isolated incidents. They were symptoms of a systemic failure: VCs prioritizing growth over governance.

Investors Are Done Playing Nice

In a recent TechCrunch exposé, VCs admitted they’re now scrutinizing founders more deeply—not just their pitch decks, but their character. Cameron Newton of Relevance Ventures said, “You pick up on things right away. Do they like constructive criticism or get defensive?

Angela Lee, a Columbia professor and venture partner, emphasized that governance cracks don’t appear overnight. “If we get ahead of these cracks, we can help,” she said.

But help isn’t always enough. When founders ignore ethical boundaries—misusing funds, fostering toxic cultures, or dodging board oversight—investors are increasingly stepping in. Some are demanding board seats. Others are pushing for founder exits. And a few are going public with their concerns, risking reputational blowback to protect their portfolios.

The VC-Fueled Firestorm

Let’s be honest: VCs helped build this monster. In their rush to back the next unicorn, many skipped due diligence, overlooked red flags, and enabled bad behavior. The FTX debacle is a prime example. Sam Bankman-Fried reportedly told investors “F*** you” when asked about forming a board—and they still poured in billions.

Now, the backlash is real. LPs are demanding accountability. Media scrutiny is intensifying. And whistleblowers are finally being heard.

A New Era of Governance?

The shift isn’t just reactive—it’s strategic. Investors like Hustle Fund’s Eric Bahn are rethinking early-stage deals, opting for structures that allow more oversight. Meanwhile, governance experts are pushing for self-regulation, transparency, and ethical frameworks tailored to startups.

But the question remains: Can VCs truly change their stripes? Or will the next charismatic founder simply find another fund willing to look the other way?

Conclusion: The Emotional Cost of Looking Away

For every founder who crosses the line, there’s a team demoralized, a product compromised, and a community betrayed. Investors are finally realizing that ethics aren’t a luxury—they’re a necessity. The cost of ignoring them isn’t just financial. It’s human.

If you’ve ever felt uneasy about a pitch that seemed too slick, or a founder who dodged hard questions, trust that instinct. The era of blind faith is over. The era of ethical investing has begun.

References

• TechCrunch: Problematic Founders and VC Response
• Startup Wired: Misuse of Venture Capital
• BIP Ventures: Decline of Ethics in VC
• Entrepreneur India: Governance Crisis in Indian Startups
• GRFCG Journal: Governance Challenges in Startups