Published on November 17, 2023, 3:32 am

The founders of IRL, Abraham Shafi and Genrikh Khachatryan, have filed a lawsuit against their investors, accusing them of deliberately sabotaging the company. IRL was once positioned to be a popular event organizing platform for Generation Z, who are increasingly moving away from Facebook. However, the company faced troubles when its CEO, Shafi, was suspended in April following allegations of misconduct.

During an investigation conducted by IRL’s board in June, it was discovered that 95% of the app’s user base consisted of fake accounts. The founders now claim that their investors fabricated this figure as an excuse to shut down the company and retrieve their capital.

The lawsuit specifically names Chi-Hua Chien of Goodwater Capital, Serena Dayal of SoftBank, and Mike Maples of Floodgate. These investors collectively contributed over $200 million to IRL, resulting in a valuation of $1.17 billion. The founders allege that the investors wanted to close down the company because they would bear most of the financial burden with $40 million cash on hand.

However, remaining board members deny these allegations put forth by the founders. In response to the suspension of Shafi and subsequent drop in daily active users on IRL’s platform, they issued a statement stating that it was not due to any technical issues but rather suspicious user behavior and evidence of misappropriation by Shafi himself.

Additionally, an SEC investigation is ongoing since December into whether IRL misled its investors and violated securities laws. This situation adds IRL to the growing list of high-profile startups facing scrutiny for potentially falsified metrics. Bolt, a one-click checkout company co-founded by Ryan Breslow, underwent an SEC probe after concerns were raised about misrepresentation during a fundraising round. Similarly, student financial aid startup Frank faced charges from JPMorgan for defrauding them by fabricating customer numbers after being acquired for $175 million.

Stephen Shackelford, an attorney representing Shafi and other plaintiffs, stated that “instead of supporting IRL through challenging times, the defendants destroyed the company and the reputations of the founders and employees who devoted years to building it. The allegations of 95% bot use were false, but the defendants needed a story and a scapegoat to protect their own reputations.”

As this legal battle continues, the case highlights the importance of transparency and trust between startup founders and investors. It also serves as a reminder that due diligence is crucial when assessing potential investments in the fast-paced world of startups.

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