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SoftBank gave $170m to a social app whose users mostly didn’t exist

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SoftBank’s $170 Million Investment in a Fictional Social App

In 2021, SoftBank, the renowned Japanese investment giant, spearheaded an investment of over $170 million in a relatively unknown social media app called IRL, propelling it to the coveted “unicorn” status with a valuation of $1.17 billion. However, the euphoria didn’t last long, as it was revealed that the app had fabricated the majority of its user base. The Information initially reported that a staggering 95 percent of the app’s purported 20 million users were fictitious.

SoftBank had touted the app as an innovative platform for event-based social networking, emphasizing its ability to bring people together. Little did the firm know that there were no actual people to bring together—only a vast network of bots and automated accounts.

IRL initially marketed itself as an alternative to Facebook, catering to younger demographics disenchanted with Mark Zuckerberg’s platform, which they perceived as antiquated. However, due to the pandemic-induced limitations on physical gatherings, the app swiftly transitioned to hosting online events.

Troubles began to surface shortly after SoftBank injected millions into the company. Last year, IRL laid off a quarter of its workforce, with founder Abraham Shafi urging remaining employees to adapt and exhibit discipline, likening the journey ahead to the pursuit of becoming an Olympian. This organizational shake-up led to mounting skepticism among employees regarding Shafi’s claim of 20 million monthly active users. Consequently, the Securities and Exchange Commission (SEC) launched an investigation into whether IRL had misled its investors. In April of this year, the company’s board of directors suspended Shafi and appointed an interim CEO.

Thanks to its exaggerated user numbers and a flawed concept, IRL is now closing its doors, taking its 19 million bot accounts with it. The company has pledged to return capital to shareholders, but the exact amount remaining in its coffers remains uncertain. Shafi had previously stated that the company possessed sufficient funds to sustain operations until well into 2024. However, given his past embellishments about the user base, such claims should be taken with a grain of salt.

SoftBank has endured a challenging week, facing not only the IRL debacle but also significant losses from its investment of nearly $400 million in a robotic pizza maker manufacturer, which ultimately folded and liquidated its assets. Consequently, the extent of SoftBank’s potential recovery from its initial investment is now uncertain, potentially amounting to a loss of $500 million within a single week. Nonetheless, SoftBank remains a major player in the technology industry, with ownership stakes in numerous companies, including the recent sale of Boston Dynamics for a substantial sum. Nevertheless, the recent events have undoubtedly been embarrassing for the firm.

Frequently Asked Questions (FAQs) about SoftBank, fictional social app, downfall, fake user base, embarrassing

What was the investment made by SoftBank in the social app?

SoftBank invested over $170 million in the social app called IRL.

What percentage of IRL’s user base was found to be fake?

According to reports, 95 percent of IRL’s purported 20 million user base was revealed to be fake.

What led to the downfall of the social app?

The app’s fabricated user numbers, along with organizational challenges and skepticism among employees, ultimately led to its downfall.

How did SoftBank react to the situation?

SoftBank faced an embarrassing week due to its investment in the fictional social app, as well as losses from other investments. The company remains a major player in the technology industry, but the recent events have undoubtedly been embarrassing for the firm.

What actions were taken by IRL’s board of directors?

The board of directors suspended the founder and appointed a new acting CEO for the company.

Will IRL be returning capital to shareholders?

Yes, IRL has stated that it will be returning capital to its shareholders, but the exact amount of remaining funds is uncertain.

What other investment by SoftBank faced challenges?

SoftBank also invested nearly $400 million in a company that manufactures robot pizza makers, which eventually closed down and liquidated its assets.

What was SoftBank’s recent sale in the technology industry?

SoftBank recently sold Boston Dynamics, a renowned technology company, for a significant amount.

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