There have now been serious allegations of fraud against London-based startup Builder.ai, once considered a disruptor of software development and valued at $1.5 billion. Builder.ai is now in bankruptcy. The company claims that its artificial intelligence-based platform will revolutionise app development. With the help of its AI-assisted platform, Natasha, the company claims that building software will be easier than ordering pizza.
The recent revelations, however, have revealed a starkly different reality: instead of employing cutting-edge AI technology, Builder.ai reportedly relies on hundreds of human developers in India, who manually execute customer requests while pretending to be AI-generated results.
Having made elaborate misrepresentations about this company, Microsoft and Qatar Investment Authority invested $445 million, led by the false idea that they were backed by a scalable, AI-based solution, which resulted in over $445 million in funding being raised. This scandal has sparked a wider conversation about transparency, ethics, and the hype-driven nature of the startup ecosystem, as well as raised serious concerns about due diligence in the AI investment landscape.
In 2016, Builder.ai, which was founded by entrepreneur Sachin Dev Duggal under the name Engineer.ai, was conceived with a mission to revolutionise app development. In the company's brand, the AI-powered, no-code platform was touted to be able to dramatically simplify the process of creating software applications by cutting down on the amount of code required.
Founded by a group of MIT engineers and researchers, Builder.ai quickly captured the attention of investors worldwide, as the company secured significant funding from high-profile companies including Microsoft, the Qatar Investment Authority, the International Finance Corporation (IFC), and SoftBank's DeepCore.
The company highlighted its proprietary artificial intelligence assistant, Natasha, as the technological breakthrough that could be used to build custom software without human intervention. This innovative approach was a central part of the company's value proposition. With the help of a compelling narrative, the startup secured more than $450 million in funding and achieved unicorn status with a peak valuation of $1.5 billion.
It was widely recognised in the early stages of the evolution of Builder.ai that it was a pioneering force that revolutionised software development, reducing the reliance on traditional engineering teams and democratizing software development. However, underneath the surface of the company's slick marketing campaigns and investor confidence lay a very different operational model—one which relied heavily on human engineers, rather than advanced artificial intelligence.
Building.ai's public image unravelled dramatically when its promotional promises diverged from its internal practices. It was inevitable that the dramatic collapse of Builder.ai, once regarded as a rising star in the global tech industry, would eventually lead to mounting scrutiny and a dramatic unravelling of its public image. This has revealed troubling undercurrents in the AI startup sector.
In its beginnings, Builder.ai was marketed as a groundbreaking platform for creating custom applications, but it also promised automation, scale, and cost savings, and was positioned as a revolutionary platform for developing custom applications. Natasha was the company's flagship artificial intelligence assistant, which was widely advertised as enabling it to develop software with no code. Yet internal testimonies, lawsuits, and investigation findings have painted a much more troubling picture since then.
According to its claims of integrating sophisticated artificial intelligence, Natasha was only used as a simple interface for collecting client requirements, whereas the actual development work was done by large engineering teams in India, despite Natasha's claims of sophisticated artificial intelligence integration. According to whistleblowers, including former executives, Builder.ai did not have any genuine AI infrastructure in place.
As it turns out, internal documentation indicates that applications are being marketed as “80% built by AI” when in fact their underlying tools are rudimentary at best, when they are actually built with artificial intelligence. Former CEO Robert Holdheim filed a $5 million lawsuit alleging wrongful termination after raising concerns about deceptive practices and investor misrepresentation in the company. Due to his case catalysing broader scrutiny, allegations of financial misconduct, as well as technological misrepresentations, were made, resulting in allegations of both.
After Sachin Dev Duggal had taken over as CEO in mid-2025, Manpreet Ratia took over as CEO, starting things off in a positive manner by stabilising operations. An independent financial audit was ordered under Ratia's leadership that revealed massive discrepancies between the reported revenue and the actual revenue.
Builder.ai claimed that it had generated more than $220 million in revenues for 2024, while the true figure was closer to $50 million. As a result, Viola Credit, a company's loan partner, quickly seized $37 million in the company's accounts and raised alarm among creditors and investors alike.
A final-ditch measure was to release a press release acknowledging Builder.ai had been unable to sustain payroll or its global operations, with only $5 million remaining in restricted funds.
In the statement, it acknowledged that it had not been able to recover from its past decisions and historic challenges.
Several bankruptcy filings were initiated across multiple jurisdictions within a short period of time, including India, the United Kingdom, and the United States. The result was the layoff of over 1,000 employees and the suspension of a variety of client projects.
The controversy exploded as new allegations were made about revenue roundtrips with Indian technology company VerSe, which was believed to be a strategy aimed at inflating financial performance and attracting new investors.
Further, reports revealed that Builder.ai has defaulted on substantial payments to Amazon and Microsoft, owing approximately $85 million to Amazon and $30 million to Microsoft for unpaid cloud services.
As a result of these developments, a federal investigation has been launched, with authorities requesting access to the company's finances and client contracts as well.
As a result of the Builder.ai scandal, a broader issue is at play in the tech sector — "AI washing", where startups exaggerate or misstate their artificial intelligence capabilities to get funding and market traction.
In an interview with Info-Tech Research Group, Principal Analyst Phil Brunkard summarised this crisis succinctly: "Many of these so-called AI companies scaled based on narrative rather than infrastructure."
There is a growing concern among entrepreneurs, investors, and the entire technology industry that Builder.ai could be serving as a cautionary tale for investors, entrepreneurs, and the entire technology industry as regulatory bodies tighten scrutiny of AI marketing claims.
There have been concerns regarding the legitimacy of Builder.ai's artificial intelligence capabilities ever since a report published by The Wall Street Journal in 2019 raised questions about how heavily the company relies on human labour over artificial intelligence.
It has been reported that, despite the company's marketing narrative emphasising automation and machine learning, the company's internal operations paint a different picture.
The article quotes former employees of Builder.ai saying that Builder.ai was a platform that was primarily engineering, and not AI-driven. This statement starkly contradicted the company's claim to be an AI-first, no-coding platform. Even though many investors and stakeholders ignored these early warnings, they hinted that there might be deeper structural inconsistencies with the startup's operations than what the initial warnings indicated.
When Manpreet Ratia took on the role of CEO of the company in February 2025, succeeding founder Sachin Dev Duggal, the extent to which the company's internal dysfunction was revealed.
It became apparent to Ratia quickly that the company had been misreported and that data had been manipulated for years in order to increase its valuation and public image, despite the fact that it had been tasked with restoring investor confidence and operational transparency.
Following the revelations in this case, U.S. federal prosecutors immediately began an investigation into the company's business practices in response to the disclosures.
Earlier this week, the authorities formally requested access to Builder.AI's financial records, internal communications, and its customer data. The request is part of a broader investigation looking into the possibility of fraud, deception of investors, and violations related to false descriptions of AI capabilities.
It should be noted that the failure of Builder.AI serves as an obvious sign that the investment and innovation ecosystems surrounding artificial intelligence need to be recalibrated urgently and sharply.
Capital is continuing to flow into AI-powered ventures at a rapid pace, and stakeholders need to raise their standards in regards to due diligence, technical validation and governance oversight as a result.
It is important to temper investor enthusiasm for innovative startups by rigorously evaluating the company's technical capabilities beyond polished pitch decks and strategic storytelling.
The case reinforces the importance of transparency and sustainability over short-term hype for founders, as well as the need for regulators to develop frameworks aimed at holding companies accountable if they make misleading claims in their product representations and financial disclosures.
Regulators are becoming increasingly aware of what is being called "AI washing" and are developing strategies to address it.
Credibility in a sector built upon trust has become an essential cornerstone of long-term viability, and the collapse of Builder.ai illustrates that this is no longer just a case of a singular failure; rather, it has become a call to action in the tech industry to place substance above spectacle in the age of artificial intelligence.
