The Missing AI In Builder.ai: How Microsoft Backed Unicorn Blew $450 Mn

Builder.ai billed itself as a no-code artificial intelligence platform, and in the end, the company seems to have taken the no-code part too seriously.

Once an AI unicorn, today, the Microsoft-backed startup (formerly known as Engineer.ai) has crashed and is going through insolvency proceedings in the US amid allegations of faking its AI tech and more.

Builder.ai is also being accused of inflating its revenue in order to lure investors, plus there have been allegations that the company simply used human workers to fill in for AI in its no-code platform.

In particular, Builder’s business relationship with DailyHunt owner VerSe Innovations has come under scrutiny, following months of issues at a corporate governance level and the exit of the CEO and cofounder.

In February this year, the company’s board removed cofounder Sachin Dev Duggal from the position of chief executive officer due to the alleged financial irregularities. Its investor, Jungle Ventures’ managing director, Manpreet Ratia, was immediately appointed as the new CEO; he couldn’t buy much time for Builder.ai either.

With Builder.ai now facing potential dissolution, this marks the first significant crisis within India’s AI ecosystem, dealing a substantial reputational blow to other companies building from India.

On social media, the Builder.ai story has drawn comparisons to India’s back-office legacy, amid allegations that human employees ran the so-called AI platform. It’s also being seen as a lesson on why believing in the AI hype — without a solid product — can leave companies on weak footing.

Today, Builder.ai is said to be unable to recover from “historic challenges and past decisions that placed significant strain on its financial position”, as the company’s statements after the insolvency filings indicated.

Headquartered in the UK, Builder.ai also said it would be “entering into insolvency proceedings” and has appointed an administrator to “manage the company’s affairs”, indicating that the management — with new CEO Manpreet Ratia — will soon step aside.

Ratia did not respond to Inc42 regarding Builder.ai’s insolvency proceedings, revenue inflation and other allegations.

But based on conversations with former employees and sources close to Builder.ai, Inc42 is now able to piece together exactly what went wrong at the startup and why many consider this a critical point in the AI story emerging from India.

How Builder.ai Squandered Millions

Founded in 2016 by Duggal and Saurabh Dhoot in Gurugram, Builder.ai allowed developers to build apps and websites with little to no coding knowledge using AI. It worked with a vision to ease customised software development for entrepreneurs, as easy as ordering a pizza.

Starting operations in 2018, Builder.ai introduced an AI-based virtual assistant, Natasha, which claimed to assist users with every step of software development. It was marketed as the world’s first AI product manager that helped users go from ideation to design, project management, and even code generation.

It’s on this promise that the company raised$29.5 Mn in its Series A funding round in 2018, led by Lakestar and Jungle Ventures, with participation from SoftBank’s AI-focused incubator DEEPCORE.

This was the first of many rounds. Builder.ai’s journey is pockmarked with large funding rounds as seen above.

This is why Builder.ai is not just any startup that lost its glow — it is a company which raised more than $450 Mn from influential global technology giants, including Microsoft, and investors like the World Bank’s IFC, the Qatar Investment Authority, and prominent venture funds like Insight Partners and Jungle Ventures.

Despite this capital accumulation, Builder.ai’s downfall ultimately resulted from weak internal controls and lapses on the technical front, as alleged by insiders within the company.

While Ratia’s appointment as CEO in February was followed by an infusion of $75 Mn from existing shareholders, this was not enough to settle Builder.ai’s dues to creditors, resulting in the company going for insolvency proceedings.

Viola Credit, one of Builder.ai’s lenders, seized close to $40 Mn from the company’s accounts, alleging a breach of loan covenants. Post this, Ratia was forced to conduct mass layoffs, and the company’s days seemed to be numbered.

When AI Is Just A Buzzword

No-code platforms emerged as a result of machine learning and AI algorithms becoming more and more proficient around 2018 and 2019. Builder.ai, which began life as Engineer.ai before rebranding in 2021, was not the only company banking on this model.

The likes of Zoho Creator, KissFlow, AppTile, QuickWork, among others, were also targeting this market, as more and more companies looked to add tech capabilities and build their apps without hiring tech talent extensively.

The core features of Builder’s product suite included Builder Cloud and Studio Store, for which the company hired more than 500 employees in the UK, USA and India. It rolled out several new plans, including subscription-based plans, project-based custom software solutions, and API access for developers, after raising millions from investors.

However, scepticism was high, with concerns that Builder.ai was simply banking on AI as a buzzword to sell its products.

Even as far back as 2019, a report by The Wall Street Journal claimed that Builder.ai is heavily dependent on around 700 engineers to perform coding tasks, rather than relying on AI to lead operations.

“We never claimed that AI would build products or apps for you. It was a way we marketed. People thought that AI was building applications, but we always told customers that AI is not building applications,” a former employee told Inc42 on the condition of anonymity.

In reality, the company used AI internally within its coding teams to ease manual tasks.

Today, this practice is known as AI washing, where companies bill themselves as artificial intelligence businesses, but in reality, the operations are handled by regular human workers.

AI washing is an intrinsic part of the artificial intelligence hype cycle. Startups will often label their products, services, or operations as being AI-first to appear more innovative or technologically advanced than they actually are.

Earlier this week, Builder.ai’s director of engineering, Andrew G, supported the company’s argument in a LinkedIn post.

“We were using AI to augment and accelerate how software was built. Our platform even matched customers with the most suitable partner developers to customise or extend reusable components, with AI guiding much of that process. We were moving towards being AI-led rather than just AI-assisted — but unfortunately, time ran out before the vision could fully materialise,” he said.

It is also pertinent to note that 700 engineers, allegedly running the AI model behind the scenes, were not payroll employees of Builder.ai. The company outsourced this part to a third party, and this meant Builder.ai could never ensure the quality of deliverables.

The final product was often below average or delivered late, sources told us.

This created a mistrust among customers and many ended their association with Builder.ai midway through their projects. But this discontinuation was never properly recorded on the books, which led to revenue inflation.

Builder.ai’s $300 Mn Revenue Inflation

Things came to a head in 2024, when Israel-based credit asset manager Viola Credit infused $50 Mn debt to support Builder.ai’s growth plans.

However, the AI unicorn allegedly misreported its revenue to Viola by almost 300%, according to allegations that have surfaced.

As per reports, Builder.ai amended its books in 2024 and adjusted revenue of FY24 from $220 Mn to around $55 Mn and it even trimmed down the revenue for FY23 from $180 Mn to $45 Mn. This resulted in what many are calling $300 Mn in inflated revenue since early 2023, which was used to raise more funds and build a PR story around Builder.ai.

The revenue inflation is a key contention point. It is alleged that the company added anticipated revenue from its subscribers to the books, rather than the actual revenue realised for the time period during which the product was utilised.

For instance, developers who would only use the no-code product for two months were often shown as being customers for longer durations, say six months or a year. Billing was conducted on a monthly basis rather than an annual charge.

Even if developers only paid for the two months, the company recognised the revenue from the full duration of the subscription.

This revenue recognition gap is often seen in SaaS models, but usually companies reflect such early contract terminations fairly. In the case of Builder.ai, the company used these inflated numbers to allegedly lure in debt investors.

Another source highlighted that the tech was not good enough to retain users, saying, “Almost 80 to 85% of the developers backed off from their projects because of the delivery issues.”

Roundtripping Funds

Builder.ai also made headlines for roundtripping funds. As per a Bloomberg report, the company faked business with Josh and DailyHunt parent VerSe Innovations to falsely inflate its sales. It suggested that both companies routinely billed each other for roughly the same amounts between 2021 and 2024, even though no service was availed by either company.

As per Inc42 sources, Builder.ai used a Verse subsidiary to generate inbound leads, but VerSe was not a client of the AI company. Hence, the transactions should have been one-sided.

Sources also alleged that Builder.ai overbilled customers for app prototypes. For example, if an ecommerce app typically costs INR 20 Lakh for complete development, Builder.ai would bill the full amount, even though the final application would not even cost INR 25,000 to make, sources alleged.

Even though investors were sold a growth story, employees could see the writing on the wall. “The problem really escalated in 2024. I think the former CEO saw this coming because every month, one or the other person from his team kept on leaving the company.”

Incidentally, Builder.ai cofounder Duggal was named as a suspect in an alleged money laundering case by India’s Enforcement Directorate.

The ED was probing round-tripping transactions between 2008 and 2012 that showed former electronics brand Videocon transferring funds to a company founded by Duggal (unrelated to Builder.ai). The funds in question were later transferred to Videocon’s overseas entities, however, Duggal later denied the allegations. The ED probe into the case is currently ongoing.

Does Builder.ai Have A Future?

Besides the insolvency proceedings and ED probe against the former CEO Duggal, Builder.ai is also on the radar of US prosecutors.

The US Attorney’s Office for the Southern District of New York reportedly demanded that Builder.ai submit financial statements and other documents before the company filed for bankruptcy. This investigation — separate from the insolvency proceedings — came on the back of allegations regarding the AI company inflating its revenue.

With the company now filing for bankruptcy, and saddled with debt of more than $120 Mn owed to cloud providers Amazon Web Services, Microsoft Azure as well as lenders such as Viola Credit among others.

Viola Credit seized $40 Mn citing loan covenant breaches, leaving Builder.ai with a mere $5 Mn in cash reserve, barely enough to cover any of its obligations.

“The lenders cited technical covenant breaches, swept over $40M in cash from our accounts, and restricted all access to funds, effectively shutting down our ability to operate,” CEO Ratia told investors in a memo, as reported by Sifted.

In insolvency proceedings, liquidators typically auction off assets to resolve all dues. But in this case, Builder.ai does not have too many hard assets and even its tech platform has holes. No acquisition deal is on the horizon either, so at the moment, the company seems to be on track for dissolution.

Having raised more than $450 Mn at a valuation of $1.5 Bn. Besides the money owed to vendors and lenders, even big name investors are staring at major write-offs, which would especially pinch them, given that they would have had a lot of conviction of an AI startup delivering the returns in the current AI-first business environment.

These shareholders — including Qatar Investment Authority, Microsoft, Jungle Ventures, Insight Partners, Lakestar and others — are unlikely to recoup any of their investment in Builder.ai. Debt investors will be given preference in any recovery from the insolvency proceedings.

As for Builder.ai’s employees, whoever had stuck around till now was also laid off during a townhall meeting held by CEO Ratia last month. It’s unclear whether the company has offered any severance pay for this exercise.

“We are now working with the administrators to manage the transition in an orderly way – to protect customers, employees, and any remaining value in the business. We’re also ensuring that all IP and data obligations are handled appropriately, and we will support any interest in acquiring assets or business lines where possible,” the CEO told investors in early June.

He also hinted at the fact that this is the end for Builder.ai. The startup’s downfall highlights that even the biggest companies and investors are not immune to falling for the AI hype, and ultimately, the Builder.ai saga has weakened the India AI story.

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