**SoftBank Sues Messaging App Startup IRL for Fake User Numbers**
**Background on IRL’s Initial Success**
Two years ago, IRL, a messaging app startup, reached “unicorn” status with a valuation of $1.2 billion following a successful $170 million Series C funding round led by SoftBank Vision Fund 2. The company’s founder, Shafi, expressed his ambition to build a global messaging app similar to WeChat in China, which boasts over one billion users.
**SoftBank’s Lawsuit and Shutdown of IRL**
However, the situation has drastically changed as SoftBank is now suing IRL for $150 million. This legal action comes after IRL’s board discovered that 95% of the startup’s users were fake or generated by bots. Consequently, IRL announced its shutdown, displaying a message on its website that commemorates the shared experiences on IRL.com and announces its closure.
**SoftBank’s Allegations and Complaint Against IRL**
SoftBank accuses IRL of using a proxy service to inflate its user data with bots and employing a firm to conceal this fraudulent activity. The complaint filed by SoftBank states that the company’s value to outside investors, like SoftBank, depended on the accuracy of IRL’s user metrics, both in terms of quantity and quality.
**Venture Capitalists Discuss SoftBank’s IRL Failure**
On a recent episode of the “All-In” podcast, various venture capitalists shared their thoughts on SoftBank’s legal battle with IRL and emphasized the importance of thorough due diligence.
David Sacks, a general partner at Craft Ventures, highlighted the significance of conducting off-sheet references, which involve speaking directly with customers rather than relying solely on information provided by the company. Sacks emphasized the need to verify data independently.
Chamath Palihapitiya, founder of VC firm Social Capital, criticized the lack of proper checks and balances in the investment process. He also believed that inexperienced VCs played a role in these failures, suggesting they lacked the courage to ask difficult questions or address critical issues proactively.
Angel investor Jason Calacanis stressed the vital role VCs play in conducting comprehensive diligence and asking uncomfortable questions. Trusting the founders is essential, but verifying the accuracy of the available data is equally crucial.
**SoftBank’s Investment Losses and Defensive Measures**
SoftBank recently reported record investment losses of nearly $40 billion in its tech-heavy Vision funds. In response, the company entered a phase of “defense mode” and temporarily halted new investments by its funds.
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