Builder.ai, a London-based startup once valued at $1.5 billion, collapsed into insolvency in May 2025 after investigations revealed that approximately 700 human engineers in India were performing the work the company claimed was automated by artificial intelligence.
The dramatic downfall exposed systematic fraud including revenue inflation of up to 300% and a sophisticated scheme to misrepresent human labor as cutting-edge AI technology to investors and customers.
Key Takeaways
- Builder.ai inflated its 2024 revenue by up to 300%, claiming $220 million in sales when actual revenue was closer to $55 million through fraudulent round-tripping schemes.
- The company’s flagship AI assistant “Natasha” was actually powered by approximately 700 human engineers in India who manually built applications while customers believed they were using automated AI technology.
- Major investors including Microsoft, SoftBank, and Qatar Investment Authority (QIA) lost over $445 million collectively, with QIA alone losing $250 million in the collapse.
- The bankruptcy left over 500 employees without jobs and customers without access to their applications, data, or source code, creating widespread secondary damage across the startup ecosystem.
- Industry analysts predict that 99% of AI startups will fail by 2026 due to unsustainable business models and lack of genuine technical differentiation, with Builder.ai serving as a cautionary tale about the current AI bubble.
The Stunning Collapse of a $1.5 Billion AI Unicorn
Builder.ai’s meteoric rise and spectacular fall serves as one of the most dramatic cautionary tales in tech history. The London-based startup, which once commanded a staggering $1.5 billion valuation, filed for insolvency in May 2025 after creditors seized nearly all its assets and whistleblowers exposed fundamental deceptions about its AI capabilities.
Founded in 2016 by Sachin Dev Duggal, Builder.ai positioned itself as a revolutionary no-code app development platform powered by artificial intelligence. The company’s flagship AI assistant, Natasha, supposedly guided users through automated app creation processes without requiring traditional programming skills. This compelling vision attracted heavyweight investors including Microsoft, SoftBank’s DeepCore, IFC, and Qatar Investment Authority, who collectively poured over $445 million into the venture.
The company’s business model appeared straightforward: users could describe their app requirements to Natasha, and the AI would handle the technical complexity of building functional applications. However, investigations revealed that human workers in India were actually performing much of the work that Builder.ai claimed its AI was doing autonomously. This discovery fundamentally undermined the company’s core value proposition and investor confidence.
The Final Financial Blow
Builder.ai’s downfall accelerated rapidly when creditor Viola Credit moved aggressively to recover outstanding debts. The creditor seized $37 million from the company’s accounts, leaving Builder.ai with just $5 million in available cash. This dramatic reduction in liquidity made continuing operations impossible, particularly given the company’s extensive global footprint and substantial workforce.
Several factors contributed to the company’s financial vulnerability:
- High operational costs across multiple international offices in the UK, U.S., India, UAE, and Singapore
- Significant personnel expenses for over 500 employees worldwide
- Mounting debt obligations to various creditors
- Declining revenue as customers discovered the truth about the AI capabilities
- Legal costs associated with defending against fraud allegations
CEO Sachin Dev Duggal’s resignation marked the beginning of the end for the once-promising startup. His replacement, Manpreet Ratia, faced an impossible situation with insufficient funds to maintain operations or satisfy creditor demands. Ratia’s announcement of immediate insolvency and mass layoffs affecting the entire workforce of over 500 employees sent shockwaves through the tech industry.
The collapse left customers in a particularly precarious position. Many businesses had relied on Builder.ai’s platform for critical applications and suddenly found themselves without access to their data, source code, or technical support. This created secondary damage throughout the startup ecosystem, as companies scrambled to rebuild applications and recover lost work.
The Builder.ai scandal highlights broader concerns about transparency in AI development. While companies like artificial intelligence continue advancing, this case demonstrates how misleading claims about AI capabilities can devastate entire organizations. The incident also raises questions about due diligence practices among major investors, particularly given the involvement of sophisticated institutional backers.
Industry observers note parallels to other high-profile tech failures, including Meta’s expensive metaverse investments that have yielded disappointing results. The Builder.ai collapse serves as a stark reminder that even billion-dollar valuations can evaporate overnight when fundamental business assumptions prove false.
The insolvency proceedings continue as administrators work to recover assets for creditors and determine the full extent of the company’s liabilities. Meanwhile, affected customers are pursuing legal remedies to recover their investments and data, though prospects for recovery appear limited given the company’s financial state.
The Great AI Deception: 700 Indian Engineers Behind the “AI” Curtain
Builder.ai’s elaborate facade began unraveling when investigations exposed a shocking truth: approximately 700 engineers in India were manually building applications while the company marketed their work as revolutionary AI technology. This discovery revealed one of the most significant cases of technological deception in recent Silicon Valley history.
Manual Development Masquerading as Automation
The company’s flagship product, Natasha, was marketed as an advanced AI system capable of automatically generating custom applications. However, former employees confirmed that AI capabilities were largely non-existent. Instead of sophisticated algorithms creating code, human programmers in India were manually writing every line while customers believed they were witnessing artificial intelligence at work.
This deceptive practice extended far beyond simple marketing exaggeration. Builder.ai had constructed an entire business model around automated app development that simply didn’t exist. The Wall Street Journal began covering these questionable AI claims as early as 2019, yet the company continued operating under false pretenses for years.
Whistleblowers Expose the Truth
Internal audits and whistleblower testimonies eventually exposed the extensive misrepresentation of Builder.ai’s core technology. Legal documents revealed systematic overstating of AI capabilities, while employees who came forward described a culture of deliberate deception. The company had essentially created a sophisticated illusion, using human intelligence while claiming artificial intelligence breakthroughs.
Former staff members detailed how the company maintained this charade through careful coordination between marketing teams and development centers. Customers received functional applications, which masked the underlying reality that no AI was involved in the creation process. The scale of this operation was staggering – maintaining the pretense required coordinating hundreds of engineers while keeping the truth hidden from investors, customers, and the public.
This revelation joins other high-profile tech failures where companies have struggled to deliver on ambitious AI promises. Similar to how Mark Zuckerberg’s expensive metaverse faced user adoption challenges, Builder.ai’s downfall highlights the risks of overselling technological capabilities in competitive markets.
The bankruptcy filing represents more than just financial collapse – it marks a cautionary tale about the dangers of building entire companies on fabricated technological foundations. The 700 engineers who actually built the applications possessed genuine skills, but their work was misrepresented to create an AI company that never truly existed.
Financial Fraud and Revenue Manipulation Exposed
Builder.ai’s financial collapse revealed a web of deceptive accounting practices that misled investors and partners for years. The company inflated its 2024 revenue by up to 300%, claiming $220 million in sales when actual revenue was closer to $55 million. This massive discrepancy wasn’t an accounting error but a deliberate scheme to attract investment and maintain its inflated $1.5 billion valuation.
Round-Tripping Scheme Creates Fake Revenue
The company orchestrated a sophisticated “round-tripping” accounting scheme with Indian social media company VerSe Innovation. This arrangement created artificial transactions between the two companies, allowing Builder.ai to record fake revenue that never actually materialized from legitimate customer sales. The scheme effectively moved money in a circle, creating the illusion of substantial business activity while masking the company’s true financial position.
This type of revenue manipulation bears similarities to other high-profile tech failures, where companies have struggled to deliver on ambitious promises. Meta’s massive metaverse investments and other tech ventures demonstrate how quickly investor confidence can shift when reality doesn’t match projections.
Mounting Debt and Unpaid Obligations
Builder.ai’s financial troubles extended beyond revenue manipulation to significant unpaid obligations to major technology partners. The company owed $85 million to Amazon and $30 million to Microsoft in unpaid cloud computing fees at the time of its collapse. These substantial debts to critical infrastructure providers highlighted the company’s inability to maintain basic operational requirements while pursuing its fraudulent accounting practices.
The Qatar Investment Authority (QIA) emerged as one of the biggest losers, watching its $250 million investment evaporate completely. The sovereign wealth fund’s substantial loss underscores the sophisticated nature of Builder.ai’s deception, as experienced institutional investors were successfully misled by the company’s fabricated financial performance.
CEO Sachin Dev Duggal now faces serious legal consequences for his role in the fraud. Indian authorities have launched a money laundering investigation, while U.S. federal prosecutors have requested comprehensive customer and financial documents. These parallel investigations suggest potential criminal charges across multiple jurisdictions as authorities work to understand the full scope of the deception.
The Builder.ai scandal demonstrates how artificial intelligence companies can exploit investor enthusiasm for emerging technologies to mask fundamental business problems. The case serves as a cautionary tale about the importance of thorough due diligence in evaluating AI startups’ claims and financial performance.
Broader AI Industry Bubble and Startup Failures
Builder.ai’s dramatic collapse represents just the tip of an iceberg in what many industry experts recognize as a dangerous AI startup bubble. I’ve observed how valuation hype and fundamentally weak business models have become disturbingly common across the sector, creating systemic risks that extend far beyond any single company’s failure.
The numbers paint a sobering picture for investors and entrepreneurs alike. Industry analysts predict that 99% of AI startups will fail by 2026, primarily due to unsustainable business models and a severe lack of genuine technical differentiation. This prediction isn’t based on pessimism alone – it reflects the reality that most AI companies struggle to develop truly unique value propositions beyond riding the AI wave.
High-Profile Casualties Mount
Several other notable AI companies have already joined Builder.ai in the failure column, each representing hundreds of millions in lost investor capital:
- Ghost Autonomy raised $220 million before shutting down in 2024, unable to deliver on autonomous vehicle promises
- Inflection AI burned through $1.5 billion while generating minimal revenue, highlighting the gap between funding and actual market demand
- Tally accumulated over $200 million in funding but failed to scale its retail automation technology beyond pilot programs
These failures share common threads with Builder.ai’s collapse: inflated valuations based on AI buzz rather than proven business fundamentals, unclear paths to profitability, and technology that couldn’t live up to marketing promises. Artificial intelligence development requires substantial technical expertise and realistic timelines that many startups underestimate.
Despite these warning signs, venture capital funding for AI startups has surged again. After dropping from $74.6 billion in 2021 to $42.5 billion in 2023, VC investment bounced back to over $100 billion in 2024. This pattern mirrors previous tech bubbles, where investors continue pouring money into increasingly questionable ventures even as early failures accumulate.
I see concerning parallels between today’s AI hype and previous technology bubbles. Meta’s massive metaverse spending demonstrates how even established tech giants can misallocate resources based on emerging technology trends. The difference lies in AI’s broader application potential, but that same versatility creates confusion about which specific use cases will actually generate sustainable profits.
Smart investors are beginning to demand more rigorous due diligence, focusing on actual revenue streams, proven technology capabilities, and clear competitive advantages rather than ambitious AI promises.
Critical Lessons for Businesses Using AI Vendors
The Builder.ai collapse serves as a stark reminder that businesses can’t afford to take AI vendors at face value. Companies investing millions in artificial intelligence solutions discovered they’d been paying for human labor disguised as cutting-edge technology, highlighting critical vulnerabilities in vendor selection and oversight processes.
Essential Due Diligence for AI Technology Claims
I recommend businesses implement comprehensive verification processes before committing to AI vendors. The Builder.ai scandal demonstrates how easily companies can be misled by sophisticated marketing claims about automated systems. Technical audits should include demonstrations of actual AI functionality, access to system architecture documentation, and third-party verification of algorithmic processes.
Financial oversight becomes equally important when evaluating high-growth AI startups. Builder.ai’s bankruptcy occurred despite raising $1.5 billion, proving that funding levels don’t guarantee legitimate technology or sustainable business models. Companies must examine vendor financial statements, cash flow projections, and operational transparency before signing long-term contracts.
Businesses should demand proof of concept demonstrations that clearly show AI automation rather than human intervention. I’ve seen too many cases where vendors present impressive results without revealing the manual processes behind them. Smart contracts and service level agreements should include specific penalties for misrepresenting technology capabilities.
Software Escrow and Vendor Risk Management
The statistics surrounding SaaS dependency paint a concerning picture for businesses without proper contingency planning. With 85% of business applications now SaaS-based, vendor failures create immediate operational risks that can paralyze entire organizations. Migration after vendor collapse typically takes 6-12 months and costs an average of $500,000 per company.
Software escrow agreements become critical insurance policies against vendor failures. These arrangements ensure businesses retain access to source code, databases, and system configurations even if the vendor disappears overnight. I always advise clients to negotiate escrow provisions before signing any significant SaaS contract, particularly with newer companies making bold technology claims.
Contingency planning must address both technical and operational aspects of vendor failure. Companies should:
- Maintain detailed documentation of their AI systems
- Establish relationships with alternative vendors
- Regularly test data export capabilities
The artificial intelligence landscape continues evolving rapidly, making vendor stability assessments increasingly important.
Risk assessment frameworks should evaluate vendor financial health, technology authenticity, and operational transparency on ongoing bases. Monthly reviews of:
- Vendor performance metrics
- Financial reports
- Technology updates
help identify warning signs before catastrophic failures occur. Builder.ai’s clients might have avoided losses by implementing systematic vendor monitoring processes.
Regular audits of AI vendor claims protect businesses from similar deceptions. I recommend quarterly technical reviews that verify actual AI functionality versus marketing promises. These audits should include:
- Performance benchmarking
- Algorithm validation
- Workforce analysis to ensure automation claims match reality
The Builder.ai case highlights how even sophisticated investors and enterprise clients can be fooled by convincing presentations and impressive user interfaces. Companies must look beyond surface-level demonstrations to understand the actual technology powering their business-critical applications. This means demanding access to technical documentation, conducting independent testing, and requiring transparency about human involvement in supposedly automated processes.
Businesses should also establish clear exit strategies before vendor relationships begin. This includes:
- Data portability requirements
- Transition assistance provisions
- Alternative solution identification
The six to twelve-month migration timeline following vendor failure can devastate operations if companies haven’t prepared adequately.
Financial monitoring of AI vendors requires attention to both revenue sustainability and technology development costs. Many AI startups operate at significant losses while pursuing growth, making financial stability assessments challenging but essential. Builder.ai’s bankruptcy demonstrates how quickly well-funded companies can collapse when their business models prove unsustainable.
https://www.youtube.com/watch?v=1Zg1DR9WGTs
Sources:
American Bazaar – “AI unicorn Builder.ai collapses in $1.5 billion bust”
Windows Central – “Microsoft backed this $1.5 billion AI startup that just collapsed after financial misdirect”
DevOps.com – “This bankrupt AI startup was more artificial than intelligent”
Codekeeper – “Builder.ai Collapse: Why You Need Software Escrow in 2025”
