You hire useless people and pay them bloated salaries using investors' money. Then they order something from a consulting firm ran by your wife, or just remember the favor, and hire you into an overpaid useless role next time they secure a round.
On paper it looks like money is being spent on product development. In practice, it's a network of friends using buzzwords to direct VC money into their pockets.
Investors don't mind it too much. Fund managers are not investing their own money either (and are part of the game) and angels hope that a chance of owning 1% of the next Uber justifies all the financial shenanigans.
