Hundreds of millions of dollars were invested in an AI company Builder.ai. But it turns out it overstated sales by as much as four times and has now filed for bankruptcy.
“We make building an app so easy, anyone can do it,” Builder.ai proclaimed proudly on its website. “Your vision. Your software. We just build it.”
Inspired slogans convinced a bunch of investors, including giants such as Microsoft and Softbank, that the startup was truly revolutionary, as was its flagship no-code development platform, allegedly powered by artificial intelligence (AI).
Investors couldn’t resist. Two years ago, the company raised a $250 million funding round led by Qatar Investment Authority, one of the world’s biggest sovereign wealth funds.
Microsoft also made an equity investment in 2023 as part of a strategic partnership, with Builder.ai's total valuation reaching $1.5 billion.
The UK-based company touted its platform as driven by an AI assistant “Natasha,” which could supposedly pump out software applications almost like Lego bricks in record time.
But now, after a key lender, Viola Credit, withdrew $37 million from its accounts, leaving a mere $5 million in restricted funds and effectively paralyzing operations in five countries, the company had no choice but to file for bankruptcy.
“Despite the tireless efforts of our current team and exploring every possible option, the business has been unable to recover from historic challenges and past decisions that placed significant strain on its financial position,” Builder.ai said in a post on LinkedIn.
What happened? Documents reviewed by Bloomberg showed that Builder.ai had been falsely increasing its revenues and reporting the inflated figures to investors. To Bloomberg, Builder.ai’s missteps "show the risks inherent in the rush to back promising AI startups." The firm’s founder, Sachin Dev Duggal, stepped down as CEO already in February.
Dozens of news outlets also reported that Builder.ai used the AI domain name to commit fraud and hired a large number of low-cost developers in India – most now without this particular job – to pretend to be AI. The claims were denied to Cybernews by Duggal's legal representative.
Documents reviewed by Bloomberg showed that Builder.ai had been falsely increasing its revenues and reporting the inflated figures to investors.
Still, Builder.ai was previously known as Engineer.ai, and attracted criticism in 2019 after The Wall Street Journal reported that the startup used human engineers rather than AI for most of its coding work.
The Verge further said the startup reportedly hoped to use the "hype around AI to attract customers and investment" to grow. At the time, that's what the company's chief business officer, Robert Holdheim, also said when he sued Engineer.ai in California.
In the industry, packaging traditional tech services as AI to secure funding is known as “AI-washing” whereas in reality, there’s a significant gap between the promise and actual capability.
Many AI companies are still expanding without robust financial oversight or genuinely unique products. A new UN Trade and Development report projects the global AI market will soar from $189 billion in 2023 to $4.8 trillion by 2033. When that much is at stake, we should have no time for AI-powered phonies.
Correction: This story has been updated throughout to reflect how Builder.ai operated, and to correct claims that the company used the AI domain name to commit fraud and had hired engineers in India to pose as AI.
Your email address will not be published. Required fields are markedmarked