The Builder.ai Bankruptcy: Round-Tripping, Fake AI, and a Cautionary Tale for Tech Investors
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| Builder.ai Collapse: The Unraveling of an AI Unicorn |
Table of Contents:
- Introduction: The Rise and Fall of Builder.ai
- The "Round-Tripping" Scheme: Inflating Sales with VerSe Innovation
- "All Engineer, No AI": The Truth Behind the Tech Claims
- Financial Mismanagement and the Path to Bankruptcy
- Mounting Legal Scrutiny and Internal Investigations
- Investor Oversight and the "Fear of Missing Out" (FOMO)
- Past Controversies: Sachin Dev Duggal's Earlier Legal Scrutiny
- Broader Implications: A Cautionary Tale for AI Startups
- Conclusion: The Unraveling of a Promising AI Dream
Introduction: The Rise and Fall of Builder.ai
Builder.ai, once hailed as a promising artificial intelligence startup and valued at an astounding $1.5 billion, has recently announced plans to file for bankruptcy. This dramatic downfall marks the most high-profile AI startup collapse since the generative AI investment frenzy began with ChatGPT's launch in late 2022. Founded in 2016, Builder.ai promised to democratize software development, making app creation "as easy as ordering pizza" through its supposedly AI-driven platform. Backed by significant investors like Microsoft Corp., the Qatar Investment Authority, and SoftBank, the London-based firm attracted substantial funding, including a $250 million round in 2023. However, beneath the veneer of success and cutting-edge AI claims, a series of alleged fraudulent practices and financial missteps led to its rapid unraveling.
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The "Round-Tripping" Scheme: Inflating Sales with VerSe Innovation
At the heart of the Builder.ai scandal are allegations of a years-long "round-tripping" scheme with Bengaluru-based Indian social media startup VerSe Innovation, the parent company behind popular news aggregator DailyHunt. According to documents reviewed by Bloomberg and individuals with direct knowledge, Builder.ai and VerSe routinely billed one another for roughly the same amounts between 2021 and 2024. This practice, estimated to involve nearly $60 million in reciprocal payments (including VerSe's subsidiary Quark Media Tech), allegedly served to create an illusion of legitimate revenue and inflate sales figures presented to investors. These payments, covering services from app development to marketing, were reportedly timed and staggered to avoid detection, with products and services often not actually provided by either company. Umang Bedi, a co-founder of VerSe, has vehemently denied these allegations, calling them "absolutely baseless and false," and stating there was "no correlation on any timing of any payment to any partner." However, Deloitte, VerSe's auditor, had reportedly flagged significant internal control lapses in the company's financial operations for FY24, identifying "material weaknesses" that could lead to misreporting.
"All Engineer, No AI": The Truth Behind the Tech Claims
Another significant revelation contributing to Builder.ai's downfall was the alleged discrepancy between its marketing claims of AI-powered development and the actual operational reality. The company heavily promoted its in-house virtual assistant, Natasha, and its "Builder Studio" platform, suggesting that non-engineers could build complex apps with "no tech knowledge needed." However, whistleblowers and former employees revealed that most of the coding work was performed by hundreds of human developers. Specifically, it was reported that Builder.ai used around 700 engineers in India for coding work that was marketed as being generated by AI. As early as 2019, The Wall Street Journal had revealed this "inconvenient truth," describing Builder.ai's AI as "more marketing gimmick than an engineering breakthrough" and stating it was "all engineer, no AI." This significant gap between the company's narrative and its operational reality became a critical point of contention, suggesting that the company relied more on marketing hype than genuine technological innovation.
Financial Mismanagement and the Path to Bankruptcy
The alleged revenue inflation and misleading AI claims created a fragile foundation for Builder.ai. The company reportedly provided lenders with significantly overstated financial projections, including projecting $220 million in sales for 2024, a figure later revised down to around $55 million (a 300% overstatement) following an internal audit. This breach of covenant proved critical. In May 2025, Viola Credit, a senior lender that provided Builder.ai with $50 million in debt last year, seized $37 million from the company's accounts. This action drastically reduced Builder.ai's available capital to a mere $5 million, effectively paralyzing its operations across five countries (including the U.K., U.S., UAE, Singapore, and India). Faced with an extreme cash shortage and inability to meet payroll obligations, then-CEO Manpreet Ratia (who had taken over from founder Sachin Dev Duggal in February to "clean up the mess") made the difficult decision to lay off most employees and initiate bankruptcy filings. The remaining $5 million in Indian accounts reportedly couldn't be used to pay workers due to restrictions on the movement of money out of the country.
Mounting Legal Scrutiny and Internal Investigations
Weeks before its insolvency filing, Builder.ai came under direct legal scrutiny from US prosecutors. The US Attorney's Office for the Southern District of New York issued a subpoena requesting detailed financial statements, accounting policies, and customer lists from the company. An internal email from General Counsel Adi Vinyarsh instructed employees to preserve documents in response. This probe followed earlier reports from former employees in March alleging that Builder.ai had inflated sales figures multiple times. Furthermore, a law firm appointed by Builder.ai's board to conduct an internal investigation reportedly found evidence of a concerted effort to inflate revenue figures, focusing particular concern on reseller relationships, especially in the Middle East, with questions arising about their genuineness.
Investor Oversight and the "Fear of Missing Out" (FOMO)
The collapse of Builder.ai also raises questions about the due diligence performed by its high-profile investors, including Microsoft and QIA. Experts suggest that large investors are sometimes driven by a "fear of missing out" (FOMO) on the next big AI success, potentially leading to rushed deals without sufficient scrutiny. Carrie Osman, CEO of private equity advisor Cruxy, commented, "This isn't the first case of disastrous FOMO we've seen over the years." The involvement of such prestigious backers lent credibility to Builder.ai, but evidently did not translate into effective oversight or the prevention of financial missteps, highlighting the risks inherent in the rush to back promising AI startups in a hype-driven market.
Past Controversies: Sachin Dev Duggal's Earlier Legal Scrutiny
Adding another layer to the company's troubled history, Builder.ai's founder, Sachin Dev Duggal, had faced legal scrutiny in India over past business engagements predating Builder.ai. According to a report by The Financial Times in March 2024, Duggal was implicated in allegations concerning money laundering related to financial dealings between 2008 and 2012, involving funds allegedly transferred from Videocon to a company he founded in India, and then reportedly moved to Videocon's international entities. While Duggal and his legal representatives denied wrongdoing and maintained cooperation with authorities, these past allegations added to the cloud surrounding the company's leadership, though Builder.ai clarified that these investigations did not relate to the startup itself.
Broader Implications: A Cautionary Tale for AI Startups
Builder.ai's collapse serves as a stark reminder and a cautionary tale for today's AI-first startups and the broader tech investment ecosystem. It underscores that hype can attract investors, but unsustainable practices, reliance on smoke-and-mirrors outsourcing, and alleged financial fraud cannot replace genuine technological innovation and sound business models. The case demonstrates how pressure to show rapid growth can lead companies to cross ethical lines, especially when the underlying technology or business model fails to deliver promised results. It also signals heightened scrutiny of tech companies' financial representations, with the "fake it till you make it" philosophy increasingly viewed as potential securities fraud.
The Unraveling of a Promising AI Dream
Once touted as a revolutionary force in software development, Builder.ai's journey from a $1.5 billion valuation to bankruptcy is a complex narrative of ambition, alleged deception, and ultimate failure. The allegations of "round-tripping" to inflate revenues, misleading claims about AI-driven development, a lack of internal controls, and subsequent legal probes have severely tarnished its image. The company's unraveling highlights the inherent risks in a highly competitive and often over-hyped tech landscape, serving as a powerful lesson on the importance of transparency, integrity, and sustainable business practices over inflated projections and marketing gimmicks.
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