The IRL debacle

Far away in the land of opportunities (USA), we get to hear of another case involving a grand failure, none other than by another giant investment bank in analyzing a company before injecting bucks into it. We get to hear about the shutdown of the social media app IRL.

The shutdown was less of a closure and more depiction of a debacle after the SCE investigation discovered that the 20 million users (as shown in the papers of IRL) of the app turned out to be fake.

The probe was led by the SEC (Security and Exchange Commission) and was informed by the board of directors. It was due to the level of skepticism fueled by usual circumstances that led these stakeholders that prompted them to take a second guess.

Last year, IRL had laid off 25% of its workforce, a year before expanding its headcount.

The social media company had raised $170 million from the Japanese investment giant Softbank.

IRL was being valued at a whopping USD 1.17 billion, a figure too stunning to be pulled off by a company of such business.

The acting CEO of that time: Abraham Shafi made outlandish claims and instilled confidence like no other. He praised his approach of being different and tackled the criticism with a peculiar stroke of positivity.

“Most people don’t want to be Olympians. In the same way, not everyone will want to walk the path we are walking” – Abraham Shafi

After receiving the cash from Softbank, Shafi immediately puts on the decision to lay off 25% workforce.

Before the incident, IRL was hailed as the perfect Gen Z substitute for Facebook, an app that no longer caters to the needs of the young and fast generations and should be reserved for the millennials and older generation.

Even the Japanese Softbank praised its approach as being the contemporary choice for renewed human communication, only to find out later that there were no real human accounts.

This kerfuffle has stirred quite a fuss on the market. But more so has questioned the abilities of these giant Invesment entities capabilities of analyzing something before making drastic decisions.

Before Softbank, JP Morgan, another investing behemoth failed to evaluate the Authentify of the Frank startup and invested millions in it.

The bank later discovered that it had been the victim of fraud by Frank’s founder Charlie Javice who created thousands of fake accounts to show an ascending number of subscribed users on the sheet.

The criticism received by these two banks, each on its respective incident has been massive. Mistakes like these that are too big to pull off put banks like Softbank and JP Morgan into doubt.

Such incidents highlight nothing but the fading capability of these banks in making sound investment decisions.

The precaution of analyzing something before making the move to acquire or invest in it drives from common sense. And when that precaution is somewhat compromised, the investors start bearing second opinions o whether to continue on this journey with the entity.

Giant banks have made more miscalculated investments that have caused them hundreds of millions, but that is a story for another day.