In May, Builder.ai, once a prominent startup known for its AI-powered app builder, filed for bankruptcy in the U.S., marking a dramatic downfall that serves as a cautionary tale in the current AI craze. The bankruptcy filing came after a series of events where creditors took control of its accounts, suspicions arose regarding the use of Indian engineers instead of AI, and an investigation into the founder’s spending leading up to the collapse. This collapse has stirred up anger among Builder.ai’s investors, particularly after revelations of founder Sachin Dev Duggal’s significant share sales before the bankruptcy. The company, which had major backers like Microsoft and the Qatar Investment Authority, had raised more than $500 million and achieved a valuation exceeding $1.3 billion.
According to reports from the Financial Times, Duggal sold over $20 million in personal shares while assuring investors about the company’s stability. These sales, made before creditors seized Builder.ai’s accounts, have raised concerns about whether Duggal prioritized personal wealth over the survival of the business. Insiders revealed to FT that Duggal’s strong personality and self-branding as Builder.ai’s “chief wizard” shielded him from tough questions until it was too late. Board oversight was lacking as the company pushed its AI vision aggressively, despite internal audits showing financial inconsistencies.
Originally launched in 2016 as Engineer.ai, Builder.ai promised businesses an easy way to build custom software through simple chat prompts. Investigations uncovered that Builder.ai’s acclaimed “AI” was mainly a facade for a network of human developers. The company’s AI assistant “Natasha” reportedly had minimal involvement in functional coding tasks, with around 700 engineers in India handling most of the work.
Financial examinations exposed significant disparities: while the company claimed $220 million in sales for 2024, audits indicated actual sales nearer to $50 million, representing an inflation of nearly 75%. Allegations emerged about Builder.ai and VerSe Innovation in India engaging in questionable billing practices to inflate revenue artificially. VerSe denied any wrongdoing.
Creditor Viola Credit seized $37 to $50 million from Builder.ai’s bank accounts, leaving the company with limited cash reserves. Consequently, Builder.ai entered insolvency proceedings in June, leading to approximately 1,000 job cuts, around 80% of its workforce. The repercussions have been profound for employees who received minimal severance packages and felt misled after assurances of job security following new funding announcements.
Builder.ai’s collapse highlights the risks associated with “AI washing,” where companies exaggerate their AI capabilities to attract investments and attention. Analysts now observe growing skepticism towards purportedly “AI-powered” ventures even among regulators. For investors, the collapse serves as a costly lesson on governance failures and reliance on charismatic founders without adequate financial scrutiny or proof of genuine technology.
Reportedly, Duggal has relocated to Dubai following Builder.ai’s collapse in an attempt to distance himself from the U.S. bankruptcy proceedings. His departure has heightened frustration among former colleagues and investors grappling with the aftermath of one of AI’s most prominent startup failures.