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SoftBank once invested in social app IRL at a $1.1 billion valuation. Now, the Japanese investment firm is suing the defunct company for fraud, alleging $150 million in damages.<\/p>\n
IRL was supposedly poised to become an event organizing alternative for Gen Z, who are using Facebook less and less<\/a>. Its self-reported numbers were impressive enough to solicit a $170 million Series C led by SoftBank in 2021, but earlier this summer, an internal investigation by IRL\u2019s board of directors found that 95% of the app\u2019s users were fake<\/a>.<\/p>\n In its legal complaint, SoftBank explains that it was moved to invest in IRL because of its impressive user numbers; the app claimed it had been downloaded by 25% of U.S. teens under 28 years old and was growing at a 400% year-over-year rate. But per the IRL board\u2019s investigation, none of these figures were accurate.<\/p>\n Investors don\u2019t always do their due diligence<\/a>, but SoftBank claims it wouldn\u2019t have been possible to verify IRL\u2019s fake user numbers, since it had \u201cprepared for SoftBank\u2019s due diligence and structured IRL\u2019s business so that SoftBank could not discover evidence of their fraud.\u201d SoftBank explains in detail its attempts at conducting due diligence before forking over a nine-figure sum.<\/p>\n Per SoftBank\u2019s claims, IRL was spending tens of thousands of dollars on proxy services to fraudulently inflate IRL\u2019s user data with bots. SoftBank also accused IRL of paying hundreds of thousands of dollars per month to a secret firm operated by IRL\u2019s head of Growth to cover up this scheme.<\/p>\n \u201cBecause IRL did not have any profitable revenue stream, its value to an outside investor like SoftBank depended on its active user metrics as a source of potential future income,\u201d SoftBank\u2019s complaint reads. \u201cThus, SoftBank relied on the accuracy of representations from IRL\u2019s executives concerning both the quantity and quality of IRL\u2019s users.\u201d<\/p>\n Reached via text, IRL CEO Abraham Shafi did not respond to TechCrunch\u2019s request for comment. Shafi is named as a defendant in the complaint, as are five of his siblings and cousins, who SoftBank alleges were part of this cover-up. Each of these family members sold IRL common stock to SoftBank in connection with these investments.<\/p>\n When SoftBank accessed a third-party report on IRL\u2019s total users and downloads, the data said that by spring 2021, IRL had only been downloaded 9 million times. Shafi, on the other hand, was claiming that the app had 12 million monthly active users, and that 2 million events got planned each day on IRL. Shafi explained away this discrepancy by saying that the number accounted neither for web sessions, nor underage users, whose data could not be shared.<\/p>\n \u201cIn reality, the platform was a virtual ghost town, filled with bots deceptively mimicking active human users,\u201d SoftBank wrote.<\/p>\n In addition to this lawsuit, IRL is being probed by the SEC<\/a> to determine whether the app violated security laws by misleading investors.<\/p>\n<\/p><\/div>\n