The founders of IRL, Abraham Shafi and Genrikh Khachatryan, are suing their investors, claiming that they intentionally sabotaged the company.
At its peak, IRL was poised to become an event organizing alternative for Gen Z, who are using Facebook less and less.
Shafi, the CEO, was suspended from IRL in April to investigate claims of misconduct. In June, IRL’s board discovered in their investigation that 95% of the company’s 20 million users were fake. Now, the founders are alleging that that their investors made up the 95% figure “as an excuse to shut down the company and return capital to shareholders.”
The lawsuit specifically names Chi-Hua Chien of Goodwater Capital, Serena Dayal of SoftBank and Mike Maples of Floodgate. From these investors, the social calendar app raised over $200 million, reaching a valuation of $1.17 billion; SoftBank in particular led IRL’s $170 million Series C round in 2021. Shafi and Khachatryan accused the investors of wanting to shut down the company because they “stood to cover the lion’s share of the company’s $40 million cash on hand.”
IRL is defunct, but the remaining board members deny the founders’ allegations.
“Shortly after Shafi’s suspension, IRL experienced a significant drop in daily active users virtually overnight. This was not due to an outage,” IRL and its board wrote in a statement, which IRL spokesperson Elliot Sloane shared with TechCrunch. In the same report that showed 95% of users were fake, they also found “suspicious user behavior including the presence of millions of duplicate-named private groups and irregular signups from Hotmail and Yahoo email addresses as well as burner email addresses,” the statement said. The forensic report showed extensive usage of IP addresses from proxy servers, and individual accounts cycling through IP addresses and device types, which are signs that the user behavior was inauthetnic.
“Based on this as well as evidence of Shafi’s misappropriation of company funds and repeated interference with the investigation, the Board – after months of review — concluded that the Company’s going forward prospects were unsustainable,” the statement concludes.
As of last December, the SEC is conducting an ongoing investigation into the possibility that IRL misled investors, violating securities laws.
IRL is just the latest formerly buzzy startup to come under fire for potentially falsified metrics. The massive one-click checkout company Bolt and co-founder Ryan Breslow faced an SEC probe after investors raised concerns that Bolt misrepresented the company’s financial state when trying to raise a $355 million Series E round. But after 15 months, the SEC told the company that it would likely not be indicted. And earlier this year, the SEC charged student financial aid startup Frank with defrauding JPMorgan, which had bought the company for $175 million in 2021. JPMorgan filed a lawsuit alleging that Frank founder Charlie Javice had faked millions of customers to get the bank to buy her company.