Builder.ai - AI Hype, Round‑Tripping, and Collapse of a $1.5B Unicorn

Once valued at $1.3–$1.5 billion, UK-based Builder.ai promised to revolutionize app development using AI-powered automation. Internal investigations and media exposés from 2024 revealed fraudulent accounting practices, circular billing with partner VerSe Innovation, and significant overstatements of revenue. By mid-2025, the company was insolvent, underwent layoffs of ~1,000 staff members, and entered bankruptcy proceedings globally. Key stakeholders and creditors like Microsoft and Qatar’s sovereign wealth fund were left grappling with significant losses

Timeline of Key Events

• 2016 – Founded by Sachin Dev Duggal (with alleged involvement of Saurabh Dhoot). Claims high-growth via AI platform “Natasha.”
• 2019 – WSJ exposes that Builder.ai used human engineers, not AI, for coding.
• 1H 2023 – Raises ~$250M from Qatar’s sovereign wealth fund and Microsoft.
• 2024 – Serious issues emerge: projected 2024 revenue of $220M revised down to $50–55M; 2023 figures restated similarly.
• May 2025 – Viola Credit seizes $37–50M amid default; internal audit reveals "round‑tripping" trades inflated sales.
• May–June 2025 – Board shake-up: Founder Duggal steps down, new CEO Joanna Manpreet Ratia brings on Big Four auditors, layoffs (~80%) announced.
• May 20, 2025 – Company formally enters insolvency proceedings across multiple countries.

Fraud Mechanics

Round‑Tripping With VerSe Innovation

• Between 2021–2024, Builder.ai and VerSe Innovation exchanged invoices of similar amounts with little actual service provided—boosting both companies' books.
• Bloomberg reported: “Builder.ai… faked business with Indian social-media startup VerSe Innovation for years to falsely inflate its reported sales.”
• VerSe denies wrongdoing.

Inflated Revenue Through Accounting Tricks

• Internal investigations identified improperly booked discounts (listing full-price contracts), small upfront deposits recorded as full revenue, and uncollected invoices. Former staff characterized the revenue practices as “an ocean” of irregularities.

AI Washing

• Despite marketing “As easy as ordering a pizza,” AI coding and product execution relied heavily on 700+ human engineers in India. Staff humorously referred to the system “Natasha” as “A Guy Instead.”

Financial Overview

Multiple sources confirm that major partners—Amazon ($85M exposure) and Microsoft ($30M) —as well as smaller clients, had outstanding debts, many of which were uncollectible due to the accounting mess.

Legal & Insolvency Proceedings

• Investigations: US DoJ (SDNY) has issued subpoenas related to Builder.ai’s financial reporting and customer data.
• Insolvency Filings: Formal bankruptcy proceedings began May 2025 in the UK, US, India, UAE, and Singapore.
• Asset Sales/Restructuring: New CEO Manpreet Ratia drafted an asset sale plan involving oversight by a Big Four firm, sought credit bids, and considered removing directors.

Sector Impact & Reputational Fallout

Investor Damage

• Qatar Investment Authority, Microsoft, Insight Partners, Iconiq, IFC, and other investors have collectively invested over $450 million.
• Creditor losses, ricocheting across the VC ecosystem.

Broader Industry Signals

• “AI washing” is now a top concern; regulators and investors demand validation of claims versus evidence of automation.
• Hype-driven valuations without transparent audit processes are no longer viable.

Cultural & Governance Lessons

• Absence of a CFO for long periods—basic controls left unmet.
• Founder Duggal was linked to prior money laundering and financial probes in India (not directly tied to Builder.ai’s operations), casting a shadow over corporate governance.

Lessons & Investor Red Flags

1. Demand audited financials, particularly if prior forecasts were restated downward.
2. Beware of circular revenue from related parties—deep diligence on major resellers or partners.
3. Validate AI technology in use via demos, sample code, or third-party assessments.
4. Robust financial leadership (e.g. CFO presence) is non-negotiable for growth-stage companies.
5. Founder history matters—check for prior legal/financial controversies, even if in different jurisdictions.

Builder.ai’s downfall is emblematic of the pitfalls of hype over substance. It combined misconduct in accounting, governance gaps, and failure to deliver on AI claims. Investors in high-growth technology must now treat caution and verification—not swagger and presentations—as the hallmarks of due diligence.