If you see fraud and you don't shout fraud, you are a fraud. Document your findings and do what is appropriate. After all, those VCs are managing people's money. They need to know.
No, you are not. Employees do not have an obligation to act purely based on morals without considering the balance of potentially very one-sided legal and financial risks to themselves.
These are professional investors with the means and the obligation to do their own due diligence. They don't need individuals making potentially life changing sacrifices in order to save them some money.
Fraud is only fraud if a judge says so. Until then, it's an accusation. The accused will defend themselves and potentially hit back at the accuser.
I would take legal advice, both on whether I have a legal obligation to report what I have seen and on how/if it can be done without taking on outsize risk myself.
Edit: Consider the moral situation from the other end for a moment. I'm a small investor myself, far too small to even be allowed to invest in venture capital funds.
Would I want some employee somewhere to take potentially life changing risks in order to protect me from losing a percentage or two of my money? Certainly not. How could I expect anyone to take on far more risk than I'm taking myself?
What I would say to the employee is, stop contributing to the deception! If there's anything more you can do safely, I would be grateful.
Unless you live in China or another poor governance country, whistleblowing is actually encouraged. It signals integrity and honesty. If the thing is indeed a fraud, it will eventually collapse. When that happens, you will have a pretty embarrassing spot in your CV. When you look back in 10-20 years, on what side do you want to be?
Another minor point:
>I'm a small investor myself, far too small to even be allowed to invest in venture capital funds. Would I want some employee somewhere to take potentially life changing risks in order to protect me from losing a percentage or two of my money? Certainly not..
Pension funds invest in VC so even if you make minimum wage, you still most likely have money invested in VCs. The longer you wait, the more of people's money (pensions, endowments, etc) will be lost in this fraud.
Whilst this may be true on paper the practice is rather different. Be aware that a company's lawyers will come after you with as much force of the law that they can muster in this situation
There's the rub, right there. There will always be a tiny doubt. Especially as a worker bee who doesn't have all the inside facts. People tend to talk themselves out of taking action due to this. The resolution is to document what you know, incontrovertibly, leave all speculation out of it and then hand the problem over to someone else. Which is why tiplines exist at the SEC, DHS, and other agencies where this sort of self-doubt is a serious impediment to reporting of malfeasance.
If you're pretty for down the totem pole you're probably safe, but awareness of fraud without exposing it can very often leave you legally liable. If you're in any kind of leadership position you could be one of the people that end up taking the fall.