A recent lawsuit has rocked the tech startup world as the founders of IRL, Abraham Shafi and Genrikh Khachatryan, have filed a lawsuit against their investors, alleging intentional sabotage. While IRL was once on the path to becoming a prominent event organizing platform targeted at Gen Z users, the company now faces a cloud of uncertainty.
The founders claim that their investors fabricated a damaging figure – stating that 95% of the company’s 20 million users were fake – in order to justify shutting down the company and returning capital to shareholders. The lawsuit specifically names Chi-Hua Chien of Goodwater Capital, Serena Dayal of SoftBank, and Mike Maples of Floodgate as the accused investors. These investors collectively contributed over $200 million to IRL, leading the company to reach an impressive valuation of $1.17 billion.
IRL initially made headlines when Abraham Shafi, the CEO, was suspended in April following allegations of misconduct. Subsequently, an investigation IRL’s board revealed the shocking revelation that almost all of the company’s users were fake. However, the remaining board members strongly deny the founders’ allegations, asserting that the significant drop in daily active users was due to genuine reasons and not an outage.
Furthermore, the company released a statement stating that the forensic report highlighted several suspicious user behaviors, including the presence of millions of duplicate-named private groups, irregular signups from email addresses such as Hotmail and Yahoo, and burner email addresses. These findings indicated the use of proxy servers and cycling through IP addresses and device types, suggesting that user behavior was inauthentic.
The Securities and Exchange Commission (SEC) has since launched an investigation to determine whether IRL misled its investors, potentially violating securities laws. This controversial lawsuit adds IRL to a growing list of startups that have faced scrutiny over potentially falsified metrics, including Bolt and Frank.
It is crucial that investors exercise due diligence and thoroughly assess a company’s metrics and user base before making substantial investments. Such lawsuits highlight the importance of transparency, credibility, and adherence to ethical practices in the startup ecosystem.
1. What is IRL?
IRL is an event organizing platform that aimed to provide an alternative for Gen Z users who are gradually moving away from Facebook.
2. Who are the investors being sued?
The founders of IRL are suing Chi-Hua Chien of Goodwater Capital, Serena Dayal of SoftBank, and Mike Maples of Floodgate, accusing them of intentionally sabotaging the company.
3. What was the lawsuit based on?
The lawsuit alleges that the investors fabricated a figure claiming that 95% of IRL’s users were fake, intending to use it as an excuse to shut down the company and return capital to shareholders.
4. What did the company’s statement reveal?
According to the company’s statement, a forensic report uncovered suspicious user behavior, including the presence of duplicate-named private groups, irregular signups from email addresses such as Hotmail and Yahoo, and burner email addresses. This behavior suggested inauthentic user engagement.
5. Is IRL the only startup facing scrutiny over falsified metrics?
No, IRL joins the ranks of other startups like Bolt and Frank that have faced investigations and legal challenges regarding potentially misleading metrics. The startup ecosystem highlights the need for transparency, credibility, and ethical practices within the industry.