In March 2022, as the sun set on a beachside stage in Maui, a rising star at SoftBank Vision Fund lavished praise on the leadership of a social media app the group had backed to become the next Facebook, and valued at more than $1bn.
The $150mn SoftBank had ploughed into IRL, the fund’s Serena Dayal said, was among the “fastest cheques” ever written by the Japanese conglomerate, according to two employees flown in for the company retreat. But even as they listened to the speech, several former staffers who spoke to the Financial Times said they were beginning to suspect the platform was a fraud.
Despite claims from IRL’s management that it had been downloaded by a quarter of US teenagers, “we had never heard of anyone using this app”, one said. “We talked to our friends and no one had ever used it,” they added. “We started asking more questions, paying closer attention.”
Fifteen months later, IRL, online slang for “in real life”, was quietly shuttered by investors, who said they had found evidence that almost all of its purported 20mn users were fake. The start-up’s collapse is now the subject of two competing lawsuits between IRL’s founders and funders.
Unlike the deal SoftBank did with office space company WeWork, whose sky-high valuation withered under Wall Street’s scrutiny, SoftBank contends that IRL was an “sophisticated, years long” fraud — a “tightly guarded” scheme.
But its founder, a tousle-haired entrepreneur with a penchant for inspirational quotes named Abraham Shafi, maintains that in seeking a “scapegoat”, SoftBank relied on inconclusive data to shut down the site prematurely in order to avoid further embarrassment and recoup its remaining cash.
The acrimonious battle has raised fresh questions about the adequacy of SoftBank’s due diligence in the years after it had been hoodwinked into multibillion-dollar losses by WeWork’s magnetic founder.
Five former IRL employees, who spoke to the FT on the condition of anonymity, said they were able to find ample evidence of bots proliferating across the site, and raised their concerns soon after the Hawaii get-together.
One former employee said they believed SoftBank had been too willing to be persuaded by the “very charismatic” and “very eloquent” Shafi. “He did remind a lot of us of [WeWork’s] Adam Neumann,” they said. “You could see why [SoftBank chief executive Masayoshi Son] was willing to invest in him.”
Launched in 2018, IRL marketed itself as a more “intimate” group messaging platform for a generation tired of the “noise” on older social media networks.
Shafi, its founder, wooed a series of smaller Silicon Valley investors, before winning the backing of SoftBank, a behemoth of the venture capital universe.
In 2021, SoftBank’s Son was so taken by the pitch for the Gen Z app that he “wanted to meet within 48 hours and offered a $500mn investment”, Shafi has claimed — five times what the founder had suggested. (People close to the company said they had no recollection of Son saying this, and Son may have made the comment in jest.)
But problems were apparent from the start, some former employees said. For instance, the events app would experience frequent outages, during which it would go dark for several hours at a time, before users came flooding back.
A former employee’s cursory examination of several of IRL’s largest groups, including those supposedly chock-full of American sports fans, showed that a significant number of the messages were one-word greetings or banalities, suggesting — they claimed — that they were written by bots.
Another staffer’s analysis of millions of images ostensibly exchanged by users showed they were actually tens of thousands of identical stock photos. And yet another employee noticed during one outage that traffic from Android devices had dropped precipitously, while Apple devices remained online — an anomaly they claimed would not be expected to occur if the shutdown affected a random selection of genuine users, with various devices.
Others within the company said there were benign technical explanations for such anomalies. People close to former IRL executives contend that outages were dealt with quickly, and that the one-word messages were based on a data set that disproportionately captured the first or last line in more substantial chats. They add the company kicked millions of bots off the platform.
In May 2022, yet another former staffer found that almost all users in the US had suddenly disappeared, only for millions of new users to soon appear in South American countries. The most likely explanation, they proffered, was that these were malfunctioning bots. People close to former IRL executives claim the anomaly was investigated and thought to be caused by defective code.
The former staffers said they were fobbed off when they raised concerns with managers. One, according to SoftBank’s lawsuit, was fired soon after highlighting the issue. People close to former IRL executives say two town hall meetings were held to discuss bot concerns.
Shafi, meanwhile, was telling the media that IRL’s mission was to help “everyone live their best life”, and to help “evolve humanity”. It was not the first social media venture for the San-Francisco born entrepreneur, who had founded another app, Gather, which sought to help friends plan social events. Shafi apologised after Gather was criticised for allegedly spamming potential users’ mobile phones with text messages urging them to sign up.
There were other warning signs, according to former staffers, including the fact that IRL was paying inflated salaries to software developers and other employees, and that many of the senior managers were closely related to Shafi. As well as the Hawaii event, for which some employees were brought in by private plane and which was held at a luxury resort, IRL spent liberally on another company event near Mont Blanc.
Things began to fall apart rapidly at IRL after a report by news site The Information cast doubt on its user base in May 2022. The Securities and Exchange Commission began to look into the company soon after, and in August issued a subpoena seeking information on its internal statistics.
In 2023, IRL’s board, which included SoftBank’s Dayal, hired a relatively obscure company called Keystone to audit the start-up’s user base, which found “clear signs of bot activity” and concluded that fewer than 5 per cent of users after June 2022 were actual human beings. IRL was closed down soon after.
SoftBank sued Shafi and some of his relatives who worked at IRL in July, demanding the return of its $150mn as well as punitive damages. The lawsuit accuses them of “an elaborate scheme to defraud investors” and paying tens of thousands of dollars “to proxy services to enable an army of bots”.
The company defended its “robust due diligence process” in the lawsuit, alleging Shafi and his co-defendants had assured their venture-capital backers that no active IRL user “was generated by any click farm”.
Shafi and his team have fired back by accusing SoftBank and its co-investors of perpetuating a “flagrant, outrageous lie” about IRL, in order to recover the $40mn cash the company still had on hand.
They have countersued to recover the “lost value” in the start-up, and Shafi is seeking damages for alleged defamation.
The founders’ complaint claims a prior report in 2021, and another completed in April 2023, found there to be many more real users, that IRL had implemented measures to help identify and remove bots, and that it suffered a user exodus only after a series of much more severe outages under a new CEO brought in to replace Shafi just a few weeks before IRL was hastily shut down.
They said there were at least 17mn unique sign-ins to IRL in April 2023 and allege SoftBank closed the start-up as its “poor investment record” created “a strong reputational incentive . . . to avoid any further embarrassment”.
SoftBank declined to comment as did a representative for IRL, which remains incorporated in Delaware for legal reasons. Stephen Shackelford, a lawyer for the Shafi plaintiffs, said that “instead of supporting IRL through challenging times, [SoftBank and its co-investors] destroyed the company and the reputations of the founders and employees who devoted years to building it”.
The SEC has not yet brought any legal actions against IRL, nor have prosecutors at the Department of Justice, who have interviewed former IRL employees. The DoJ declined to comment. The SEC said it would not comment on “the existence or non-existence of a possible investigation”.
Dayal remains at SoftBank, where she helped fund Picsart, a photo and video editing tool that is capitalising on the boom in artificial intelligence.
Former employees of IRL — some of whom claimed they had initially struggled to find work after being tainted by their association with the tech group — said they originally joined because they were reassured by a supposedly sophisticated investor like SoftBank’s seal of approval.
“I wouldn’t have entertained an offer with the company had it not been backed by some of the biggest names [in Silicon Valley],” said one. “It lent legitimacy.”
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