Two years ago, a messaging app startup named IRL hit a $1.2 billion valuation after a SoftBank Vision Fund 2 led a $170 million Series C funding round. Known as the “leading group messaging social network,” the company envisioned uniting people via events and shared experiences.
However, the authenticity of its user base, previously touted by CEO Abraham Shafi as having 20 million monthly active users was ultimately called into question, leading to the company’s untimely downfall.
Today, the IRL App venture is being shuttered, following the shocking revelation that 95% of its users were automated or bots, according to a report by The Information. This marks a startling twist in the journey of IRL App, once hailed as an upcoming event-organizing alternative for Generation Z.
The problem of FAKE accounts!
Ironically, the social app IRL‘s users do not exist in real life.
An internal investigation by IRL’s BOD found that 95%(20M) of the app’s users were “automated or from bots.”
So, IRL is shutting down after raising $200M+ in venture capital. pic.twitter.com/WmHUnLUQeS
— Amit Misra (@amit6060) June 27, 2023
A “Bot”ched User Base – The True Face of IRL App’s Communities
In an investigative report released on June 23, The Information disclosed that IRL App’s board of directors found that the majority of the reported 20 million users were not human but automated or bots. This discovery spelled the end for IRL App, despite its $200 million venture capital backing.
Touted as the Gen Z answer to Facebook’s event organization features, IRL App experienced internal unrest following its massive SoftBank-led funding round. After the funding windfall, the company’s internal issues surfaced, leading to surprising layoffs and subsequent questions about the validity of its user numbers.
Last year, IRL App reduced its workforce by 25%, surprising many as the company had tripled its headcount in the preceding year. In a company-wide memo acquired by TechCrunch, CEO Abraham Shafi encouraged employees to remain disciplined, comparing the company’s journey to the challenges faced by Olympic athletes.
Despite Shafi’s optimistic analogies and claims that IRL App had “more than enough cash to last well into 2024,” doubts arose within the company regarding its reported 20 million monthly active users. Around this period, the SEC began an investigation into possible securities law violations by IRL App, resulting in the suspension of Shafi and the appointment of an acting CEO.
The Fallout of False Promises – A Reckoning for IRL App
Earlier this year, a former employee’s allegations brought to light that IRL App had dismissed him after he raised concerns about the significant presence of bot users. This incident, followed by Shafi’s resignation as CEO in April, marked a rapid decline for the once-promising startup. An IRL App spokesperson confirmed to The Information that the company’s future prospects were unsustainable and that it would be winding down its operations, returning capital to shareholders.
Kudos to @theinformation for this great work.
Building a real business without fraud means it’s nearly impossible to reach “unicorn status” in a few years time. But it’s businesses like mine (and Jessica’s) that last. Choose your fighter. https://t.co/xnnfuDKbu7
— Sara Mauskopf (@sm) June 24, 2023
Leaders from other startups reacted to the news of IRL App’s downfall, with Winnie CEO Sara Mauskopf tweeting that achieving unicorn status without fraudulent practices is challenging. Former Outlier.ai CEO Sean Byrnes echoed this sentiment, hinting at more similar stories in the pipeline due to the “insanity of the last 3 years.”
A Pattern of Fiasco – SoftBank’s Struggles with Startups
The unfortunate unraveling of the IRL App isn’t SoftBank’s first debacle with startups. The high-risk, high-reward investment style of SoftBank’s Vision Fund has led to several high-profile blunders, indicating a pattern of misjudgments that has resulted in billions of dollars in losses.
— Tweets from Zach Weinberg (@zachweinberg) June 23, 2023
In 2017, SoftBank invested $250 million in the workplace collaboration software Slack. However, the value of Slack’s shares declined significantly after it went public, causing concern over SoftBank’s investment. The growing competition from Microsoft Teams, which has more users than Slack, remains a significant threat to Slack’s future profitability and survival.
Construction technology startup, Katerra, is another glaring example of SoftBank’s ill-fated investments. Despite receiving $865 million in funding from SoftBank in January 2018 and an additional $134 million in September of the same year, Katerra failed to complete over a dozen projects. It eventually laid off 200 employees and shut down a factory in Phoenix.
Similarly, the pizza delivery startup, Zume Pizza, received $375 million in funding from SoftBank at a $1 billion valuation. Despite these funds, Zume had to lay off more than half of its workforce less than two years later and shutter its robotic pizza business.
SoftBank’s high-stakes investment in WeWork, the office space provider, has been one of its most catastrophic ventures. Initially valued at a staggering $47 billion, the startup’s plans for an IPO crumbled when questionable accounting practices, toxic culture, and significant losses were revealed. SoftBank’s rescue deal for WeWork valued the company at a mere $8 billion, marking a monumental loss.
These instances suggest a persistent pattern of overly ambitious valuations, coupled with inadequate due diligence and an underestimation of market dynamics and competition. The collapse of IRL App adds to the string of SoftBank’s investment failures, underscoring the need for more prudent investing strategies and a reassessment of its high-risk, high-reward philosophy.
At its zenith, the IRL App boasted approximately 100 employees and had raised capital from reputable sources such as Founders Fund, Goodyear Capital, and Floodgate Fund. With the dream of becoming “WeChat for the rest of the world” now crushed, IRL App serves as a stark reminder for other tech startups of the repercussions of inflated user numbers and unfulfilled promises
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