vSphere ESXi
The root cause of this issue is a dependency on the Microsoft Visual C++ Redistributable packages. The VMware Tools installer requires these packages to be present on the guest operating system. The "Windows Runtime DLL installer failed to complete install" error specifically indicates a failure related to vcredist_x86.exe with an ERROR_MOD_NOT_FOUND error.
To resolve this issue, manually install the Microsoft Visual C++ Redistributable packages prior to attempting the VMware Tools upgrade. The specific version required is dependent on the VMware Tools version being installed (12.3.5 in this case). Refer to VMware documentation for compatibility information.
Workaround:
setup.exe /xcd %TEMP%\{Tools GUID Number}~setup