In 2021, SoftBank, a prominent Japanese investment company, led the way in elevating a relatively unknown social media app called IRL to unicorn status with a valuation of $1.17 billion. SoftBank invested over $170 million in the app, which claimed to have a user base of 20 million. However, it was later revealed that 95 percent of these users were fake, and the app had fabricated its user numbers.
IRL positioned itself as a platform for organizing events, offering an alternative to Facebook that appealed to younger generations who perceived Facebook as outdated. However, the app quickly shifted its focus to online events due to the limitations imposed by the pandemic.
Soon after SoftBank’s investment, problems began to arise for IRL. The company had to lay off 25 percent of its workforce, and founder Abraham Shafi urged remaining employees to adapt and be disciplined. Employees became suspicious of Shafi’s claim of 20 million monthly active users, prompting an investigation into whether IRL had misled investors. As a result, Shafi was suspended, and a new acting CEO was appointed.
Due to its inflated user numbers and flawed concept, IRL has now announced its shutdown, taking its 19 million fake users with it. The company has stated that it will return the capital to its shareholders, but the exact amount remaining in its coffers remains undisclosed. Shafi previously claimed that the company had enough cash to sustain operations until 2024, but as he also touted the 20 million active users, his statements are now viewed with skepticism.
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This has been a challenging week for SoftBank, as the company also invested nearly $400 million in a robot pizza maker company that ultimately closed down. The closure of this company, which received SoftBank’s substantial investment, further highlights the potential loss the investment giant may face. In total, SoftBank could potentially lose $500 million in a single week. However, SoftBank remains a major player in the technology sector, owning numerous technology companies and recently selling Boston Dynamics to Hyundai Motors for a significant sum.
In conclusion, SoftBank’s investment in IRL, a social media app that misrepresented its user numbers, has proven to be a costly and embarrassing venture. The app’s reliance on bots and automated accounts raised suspicions among employees and led to an investigation into potential investor deception. With IRL’s shutdown and the closure of the robot pizza maker, SoftBank faces significant financial losses. Nonetheless, SoftBank’s diverse technology portfolio mitigates some of the damage caused by these unsuccessful investments.
