I have a packed issue this week, starting with the implosion of a once-hot social media startup called IRL. It raised $200 million at over a $1 billion valuation, and now its board is dissolving the company after finding that most of its users were fake. The SEC is investigating. It’s a whole mess. I have ex-CEO Abraham Shafi’s first public comments on the situation since he was ousted by the board.

Also in this issue: a convo with the earliest investor in MosaicML, the AI startup that just sold to Databricks for more than $1 billion; some notes on Google’s AR strategy; a scoop about Meta getting into the app distribution game; drug use in Silicon Valley; a Musk-versus-Zuckerberg cage match update; and more…

But first: Thanks to Roblox CEO David Baszucki for taking the time to chat with me for the latest episode of Decoder. You can listen to our full conversation, read the transcript, or watch a shorter version on YouTube.

A schedule note: Command Line will be going dark next week. I’ll be back the week of July 10th.

A reminder that you can access the full archive of Command Line issues here online.

IRL’s ex-CEO speaks out

I first heard about a social media startup called IRL in April of 2021. A source who had invested in the company offered to connect me with its CEO, Abraham Shafi. Shafi is the real deal, I was told. He could be the next Evan Spiegel or Mark Zuckerberg.

These kinds of introductions happen all the time in my line of work, and you never want to miss out on building an early relationship with the next world-changing entrepreneur. I accepted the intro offer and was soon on the phone with Shafi.

He immediately impressed me with his charisma and vision. He eloquently explained how he wanted to build “Facebook groups and events for the generation that doesn’t use Facebook.” He said IRL (“in real life”) had found its early users by focusing on middle America, with most of its usage coming from young people in states like Texas. “We wanted to build for the average user, not the cool tech user,” he told me.

Shafi was a repeat entrepreneur who had successfully sold his prior startup, a recruiting software platform. And even though IRL was quite small relative to the companies I normally cover, he’d already attracted a who’s who of investors and advisors, including Scott Banister, a member of the PayPal mafia. “Some consumer products are an overnight success, but a lot of the ones that have worked for us can take years,” Mike Maples, an IRL board member and early backer of Twitter and Twitch, told me at the time. “Now we’ve got enough critical mass that things are starting to get interesting.”

Things did get interesting, just not in the way Maples was suggesting to me then. After raising $200 million at a unicorn valuation and claiming to have 20 million users, IRL announced last week that it’s shutting down after a special committee of its board found that 95 percent of those users are fake. The SEC has been conducting an investigation for months, and Shafi was ousted as CEO at the end of April after the board said it discovered a pattern of misconduct.

These kinds of implosions have grown increasingly common as more money has funneled into tech. Even still, I feel a personal connection to this story, given the early platform I gave IRL both at The Verge and my former employer, The Information. I realized Shafi, who goes by Abe, had yet to speak out since he was fired, so I decided to reach out after the news of IRL’s dissolving came out. I knew it was a long shot, especially given that the SEC is still investigating the situation.

But to my surprise, he responded.

“Hey Alex,” he texted me the other day. “The 95% number shocked me and many others at the company. We have not been given a basis to justify this number and believe it is wrong. Although all social media companies contend with bots, my team and I routinely took steps to detect and expel them, and believed in our metrics.”

After defending his approach to fighting spam and fraud while CEO, he went on to tell me that “my suspension had nothing to do with bots. I was told that the action was taken due to a personal expenses issue. I had put both personal and business charges on the same credit card. Although the account was opened on my personal credit and I was responsible for all charges, the company paid the monthly statements and I reimbursed the company for the amounts owed to cover my personal charges. Although I am not proud of this mess, these expenses do not impact our product, our metrics, or our team.”

In an internal email explaining the company shutdown last week, IRL employees were told that an “SEC investigation into potential violations of federal securities laws” kicked off the process. “Based on company counsel’s investigation into the allegations raised by the SEC, as well as concerns about management’s response to the SEC investigation, in March 2023 the Special Committee engaged outside counsel to conduct an independent review of the allegations connected to the SEC investigation,” according to the email, which concludes that “the company’s going forward prospects are unsustainable.”

Based on my recent conversations with current and former IRL employees, including those who are sympathetic to Abe and those who think he is a scheming liar, there’s clearly more to this story than I can fit in one column. A spokesperson for the remaining IRL management team declined to comment for this story on the record. (Needless to say, if you know more about what went down, get in touch.)

For now, what I can say is that things went very wrong at IRL. Its blue chip investors are now scrambling to save face, and its employees are suddenly out of a job with little to no severance and worthless equity. “I’m saddened, stunned and frustrated,” one early employee who was there till the bitter end told me.

While I don’t know what will happen next, I won’t be surprised if the SEC files charges against Shafi. (When I asked if he was expecting to be charged, he said “I can’t comment on that.”) I ended our text conversation by asking him what his message was to IRL employees.

Here’s what he wrote back:

“What we built had immense value and ended too soon. The worst part of seeing the headlines is knowing the unfair damage they will cause to the employees who worked their hearts out for years. They deserve nothing but respect for building a product and set of tools to bring people closer together. I just want them to know that I was honored to work alongside them.”

A big AI acquisition and what it means

One of the biggest stories this week was the $1.3 billion purchase of MosaicML by Databricks. It’s a watershed acquisition that, as I alluded to in an earlier issue of this newsletter, signals how important open-source AI models are quickly becoming. It’s also an eye-popping number for a 60-person startup that is less than three years old, though it’s worth noting that the deal is mostly in Databricks stock.

“We were not expecting to sell the company anytime soon,” Lux Capital general partner Shahin Farshchi, who was the earliest investor in Mosaic, told me over the phone the other day. “If you would have asked me a year ago if a company like Snowflake or Databricks would have acquired Mosaic, I would have said, ‘huh?’”

What changed? The “zeitgeist around AI” and the “concerns created” by the rise of OpenAI and other centralized companies in the space, according to Farshchi. “That brought about all these questions around privacy [and] compliance, now that companies have to hand over their data to someone else to benefit from this technology.”

Mosaic’s insight is unique algorithms that take open-source AI models and pretrain them on proprietary company data for a fraction of the cost of other solutions. Unlike OpenAI, Anthropic, and the other closed-source AI firms, the models that Mosaic produces are owned by the companies that create them. By combining Mosaic’s tech with the data management tools and massive sales force at Databricks, the result is a vertical stack for companies to manage and deploy their own models.

Farshchi, who recently testified before Congress about the risks and opportunities of AI, compared it to the advent of Amazon Web Services and the impact that had on startups that suddenly had easy access to cloud hosting: “Companies that couldn’t leverage AI because they couldn’t let their data go somewhere else now have an option to access, train, and deploy.” He expects an “explosion” of new startups now that the cost of building generative AI experiences with open-source technology is rapidly coming down.

Another side effect is that large funding rounds for early-stage, pre-revenue AI startups — like the $1.3 billion round Inflection AI announced just yesterday — may become a thing of the past. “If you go out to build a foundational model company, you need $100 million plus to train models,” explained Farshchi. “As a result, you have to raise at a big valuation to avoid too much dilution. This will break that cycle. You no longer need to raise at a crazy price to do interesting things in AI.”

Notes on Google’s AR pivot

Insider published an interesting story this week about Google’s changing AR strategy. It builds off a report I published last year about the company’s “Project Iris” headset, which has now been canned after the departure of its leader, Clay Bavor.

The big shift is that, according to Insider and my own sources, Google has given up on building its own in-house pair of AR glasses. It’s now shifting to the same playbook for Android on mobile and hoping to power devices made by hardware companies like Samsung. All of the work that went into building custom silicon and a fully custom OS for Iris has been thrown out in favor of an “Android for XR” approach that can be licensed out.

I’m told that the team building AR hardware was severely impacted by the recent layoffs, putting the future of Google’s acquisition of the MicroLED company Raxium into question. Shahram Izadi oversees the roughly 800-person AR software organization and reports directly to Hiroshi Lockheimer, the SVP of Android and Chrome.

Another layer here is that the dynamic between Samsung and Google seems to be growing increasingly complicated as Google continues investing in its own Pixel line of hardware. Google needs Samsung for Android distribution, and now it’s working with Samsung on some kind of mixed reality headset.

“Google big bets are only as strong as the leader advocating for the bet/funding to continue,” one person who worked on Iris recently told me. “So for AR at the moment, Samsung is the sugar daddy supporting the team building goggles. If there is success with Samsung on goggles, then maybe Iris will have another shot at life? That’s the current level of commitment.”

Meta plans its own kind of app store

Speaking of Google, I have a feeling that the folks over in Mountain View are paying attention to this: Meta is planning to let people in the EU directly download apps through Facebook ads, setting the company up to eventually compete with both Google and Apple’s app stores.

The new type of ad is set to start as a pilot with a handful of Android app developers as soon as later this year, I’ve learned. Meta sees an opening to try this thanks to new regulation in the EU called the Digital Markets Act (DMA) that is expected to go into effect next spring. It deems Apple and Google as “gatekeepers” and requires that they open up their mobile platforms to alternative methods of downloading apps.

Android technically allows sideloading already, though Google makes it difficult by coupling its in-app billing and licensing with the Play Store, along with the scary warnings it shows when someone tries to download an Android app from another source. Even still, Meta clearly thinks it’s safer to try its test first on Android rather than Apple’s iOS.

Meta’s pitch to developers participating in the pilot is that, by hosting their Android apps and letting Facebook users download them directly without being kicked out to the Play Store, they’ll see higher conversion rates for their app install ads. At least initially, Meta doesn’t plan to take a cut of in-app revenue from participating apps, so developers in the pilot could still use whatever billing systems they want.

A spokesperson for Meta, Tom Channick, confirmed the plan to me in an emailed statement: “We’ve always been interested in helping developers distribute their apps, and new options would add more competition in this space. Developers deserve more ways to easily get their apps to the people that want them.” Google didn’t respond to a request for comment.

Meta isn’t alone in wanting to become a distributor of mobile apps when the EU’s DMA goes into effect. In March, Microsoft said it hoped to launch an alternative app store for games on iOS and Android in Europe next year.

Drug use in Silicon Valley

This Wall Street Journal story about the widespread drug use in tech circles is a fun read. I have personally been offered ketamine by an executive at a fancy tech conference, and I don’t even work in tech!

I’m jealous of the anecdotes that Kirsten Grind and Katherine Bindley from WSJ got into their piece. It all reminds me of a juicy tip I recently heard about a very prominent tech CEO who may or may not be mentioned in the story.

According to someone who said they witnessed the situation unfold firsthand, this CEO’s security team made everyone leave an upstairs room at a mansion party in Los Angeles so that he could drink molly water without any witnesses. As the saying goes, it’s lonely at the top.

A Musk versus Zuckerberg fight update

Lex Fridman has trained with both men and posted a video of his session with Zuckerberg. Musk also wants to train with UFC legend Georges St-Pierre, while heavyweight champion Jon Jones has offered to be Zuckerberg’s training partner.

Meanwhile, the Italian government has apparently offered to host the fight in the actual ​​Colosseum.

Musk’s dad on the situation: “The thing is, if this crazy fight goes ahead, if Elon beats this guy, Elon will be called a bully, being so much heavier and taller…While if he loses, the humiliation would be total…Elon loses if he wins and loses if he loses.”

Quote of the week

“The dominant player there [Sony] has defined market competition using exclusives, so that’s the world we live in. I have no love for that world.” – Microsoft CEO Satya Nadella.

Another big story this week is the FTC v. Microsoft trial, which will determine whether Microsoft’s $68.7 billion proposed acquisition of Activision Blizzard goes through. My colleague Tom Warren has been providing unparalleled, blow-by-blow coverage of the whole saga that I recommend you check out if you’re interested in the details.

For me, these kinds of trials are a great window into how big companies actually operate on the inside, thanks to the discovery process that produces internal strategy documents (sometimes by mistake).

I have no idea if Microsoft will win the case or not, but if you care about the business of gaming, this trial has been very illuminating.

People moves

• Bret Taylor joined Shopify’s board of directors.
• Kelsey Hightower, Google Cloud’s principal developer advocate, is retiring.
• Tal Broda, formerly head of engineering for the crypto VC firm Paradigm, has joined OpenAI as “scaling team lead.”
• Ren Ito, the former COO of Stability AI, was “let go,” according to the CEO, Emad Mostaque.
• Danny Lange, Unity’s former SVP of AI, has joined Google as VP of “business intelligence” for AI.
• Оlga Belogolova, who led Meta’s policy team for countering influence operations, is leaving.
• Brian Janous, Microsoft’s VP of cloud energy strategy, is leaving.
• Jason Mok has joined Brex from Andreessen Horowitz to be its new head of startups.
• Brooke Oberwetter, one of TikTok’s most vocal spokespeople, is leaving.

Interesting links

• Prabhakar Raghavan, Google’s head of search, admitted internally that “users are still not quite happy” about the quality of results.
• Twitter CEO Linda Yaccarino’s media strategy: “have very good relationships with them so they become our advocates or mouthpieces to amplify our strategies.”
• Niantic CEO John Hanke’s email explaining why the company is laying off 230 people.
• A class-action lawsuit against OpenAI accusing it of illegally using Californians’ data to train ChatGPT.
• Coatue’s slide deck on the state of tech investing and what it means for founders.
• Garry Tan on “how to survive the next tech revolution.”

That’s it for this week.

A reminder that I’m off next week. The next issue will be sent the week of July 10th.

In the meantime, I’d love to hear your feedback. Thanks for subscribing, and have a great holiday weekend.