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Why did IRL Fail?

What Happened To IRL & Why Did It Fail?

January 24, 2025

IRL, a social app designed to facilitate real-life events for Gen Z, initially gained traction with significant venture capital backing. However, an internal investigation revealed that 95% of its users were fake, leading to its downfall. The company faced layoffs, an SEC investigation, and ultimately shut down.

What Was IRL?

IRL

IRL's main product was a social app designed to facilitate real-life events for Gen Z. Its unique value proposition was offering an alternative to Facebook for event organizing. Notable achievements include raising over $200 million in venture capital and reaching a $1.17 billion valuation, despite its eventual downfall.

What Happened to IRL?

The story of IRL's rise and fall is a cautionary tale of rapid growth followed by a dramatic collapse:

  • Initial Success and Funding: IRL quickly gained traction as an event organizing app for Gen Z, raising over $200 million in venture capital. A $170 million Series C round led by SoftBank valued the company at $1.17 billion.
  • Fake User Revelation: An internal investigation revealed that 95% of IRL's reported 20 million users were fake, consisting of automated accounts or bots. This shocking discovery led to significant internal and external scrutiny.
  • Leadership and Layoffs: The company faced internal turmoil, including the layoff of 25% of its staff. CEO Abraham Shafi was suspended amid doubts about the authenticity of user metrics and an ongoing SEC investigation.
  • Public and Media Backlash: The revelation of fake users and the SEC investigation severely damaged IRL's reputation. Venture capitalists and the public criticized the company, labeling the situation as "inexcusable."
  • Final Closure: Ultimately, IRL shut down, planning to return its remaining capital to shareholders. The company's downfall serves as a stark reminder of the importance of transparency and authenticity in the tech industry.

When Did IRL Shut Down?

IRL announced its decision to shut down on June 26, 2023, following the revelation that 95% of its users were fake. This decision came after an internal investigation and significant scrutiny from both the public and regulatory bodies.

Why Did IRL Shut Down?

  1. Fake User Revelation: An internal investigation revealed that 95% of IRL's reported 20 million users were fake, consisting of automated accounts or bots. This discovery severely undermined the company's credibility and led to significant scrutiny from both the public and regulatory bodies, including an SEC investigation.
  2. Internal Management Issues: IRL faced significant internal challenges, including the layoff of 25% of its workforce. Despite having recently tripled its headcount, the company struggled with internal doubts about user numbers and overall management, leading to a loss of employee morale and trust in leadership.
  3. Regulatory Scrutiny: The SEC began investigating whether IRL violated securities laws, adding legal and regulatory challenges to the company's existing problems. This investigation further damaged the company's reputation and contributed to its eventual shutdown.
  4. Leadership Turmoil: CEO Abraham Shafi was suspended amid doubts about the authenticity of user metrics and the ongoing SEC investigation. The leadership crisis added to the company's instability, making it difficult to navigate the challenges it faced.
  5. Public and Media Backlash: The revelation of fake users and the SEC investigation led to severe public and media backlash. Venture capitalists and the public criticized the company, labeling the situation as "inexcusable," which further eroded trust and support for IRL.

Lessons Learned from IRL's Failure

  • Transparency is Crucial: Always maintain transparency with stakeholders to build trust and avoid damaging revelations.
  • Verify User Metrics: Ensure the authenticity of user data to prevent credibility issues and regulatory scrutiny.
  • Strong Leadership: Effective leadership is essential for navigating crises and maintaining employee morale.
  • Regulatory Compliance: Adhere to legal standards to avoid investigations and potential shutdowns.
  • Manage Growth Wisely: Rapid expansion should be balanced with sustainable practices to avoid internal chaos.
  • Public Perception Matters: Maintain a positive public image to secure ongoing support from investors and users.

We Shut Down Startups

IRL's downfall highlights the complexities and challenges of shutting down a startup, from legal entanglements to operational chaos. If you're facing a similar situation, Sunset can help you navigate these turbulent waters.

Sunset takes on the legal, tax, and operational burdens, allowing you to avoid penalties and reduce liabilities. Book a demo today to see how we can help you move on to your next venture seamlessly.