The £1bn British AI dream that collapsed in controversy

Telegraph

2 days ago

'It is not the critic who counts,' Sachin Dev Duggal posted on Instagram days after he was pushed out as chief executive of Builder AI. 'The credit belongs to the man who is actually in the arena … who, if he fails, at least fails while daring greatly.'
Just weeks after Duggal posted this famous Teddy Roosevelt quote, Builder AI would indeed fail – and in spectacular fashion.
On May 20, the London start-up confirmed that it would be appointing administrators with the loss of about 1,000 jobs.
The collapse came despite Duggal, a colourful technology entrepreneur who went by the title of 'chief wizard', raising more than $450m (£334m) in funding from investors including Microsoft, Qatar's sovereign wealth fund, and venture capital investors such as Insight Partners.
Builder AI had claimed to use 'human-assisted AI', including a bot called 'Natasha', to quickly and cost-effectively build apps for customers, including the BBC. Duggal, who has said he started building PCs at home at the age of 14, said the company would make building an app as easy as ordering a pizza.
This vision helped Builder AI catapult to a valuation of $1.5bn, making it one of Britain's rare 'unicorns' – a private tech company worth more than a billion. Not only that, it was also operating in the field of AI, a technology Sir Keir Starmer has promised will 'deliver a decade of national renewal'.
'Zero dollars'
Now, administration appears all but certain, although advisers have yet to be formally appointed.
Manpreet Ratia, who was parachuted in by investors to try and save the business, told staff earlier in May that he had been left running the company with 'zero dollars', according to the Financial Times.
In a letter to investors seen by The Telegraph, Ratia blamed the sudden collapse on the 'unexpected and irreversible action' of the company's senior lenders who 'swept over $40m in cash from our accounts, and restricted all access to funds, effectively shutting down our ability to operate'.
According to Bloomberg, the company's lenders pulled funds after Builder AI's promised sales figures came in far below expectations. Before his exit the 42-year-old Duggal gave lenders a sales forecast in the region of $220m for 2024. After an independent audit, the actual figure came in at $50m.
Builder AI was also forced to restate its sales for 2023 after previously booked sales from resellers of its technology were not collected for long periods.
The Financial Times reported Builder AI commissioned a law firm to investigate the figures and experts involved in the review told Ratia that they believed there may have been past efforts to inflate sales, it was reported.
In the letter from Ratia to investors, he revealed that Builder AI had borrowed $50m last year and owed $88m in cloud fees to businesses such as Amazon. A $75m capital infusion by existing investors in March was not enough to stave off collapse.
Despite its lofty valuation, the company had been grappling with a series of crises for years. One source says: 'Where did it go wrong? Everywhere.'
Attention-grabber
Builder AI was founded in 2016 by Duggal, an Imperial College graduate who worked at Deutsche Bank before founding Nivio, a cloud computing business that he later sold.
From the outset, the company caught the attention of the wider business world. Duggal was named an EY World Entrepreneur of the Year in 2024 and, that same year, he hosted the rapper Will.i.am at the 'BuilderPlex' event in Davos for the World Economic Forum.
Yet as early as 2019, problems had begun to emerge.
Builder AI and Duggal were sued by Robert Holdheim, a former employee, for $5m that year. Holdheim alleged he was dismissed after complaining that the company's technology at the time 'did not work as promoted and was essentially nothing more than 'smoke and mirrors''.
At the heart of the allegation was a claim that Builder AI was far more reliant on humans than it let on. Holdheim claimed the company told investors apps were '80pc' built by a product it had 'barely even begun to develop'. Instead, it relied heavily on contractors in India, according to court filings.
Builder AI disputed the allegations and the lawsuit was later settled. Duggal always insisted the company had been upfront that its AI was 'human-assisted'. Investors would later say that this combination of automation and human-helpers allowed apps to be built 'multitudes cheaper and faster' than traditional approaches.
At a 2020 conference, Duggal said that ' AI doesn't mean Another Indian ', adding 'how you translate a company's mission and where it is today to the company's aspirations are two very different things'.
Later, the start-up would sue Barry Kaufman, the lawyer that had brought the claims, alleging the case had been the basis of a damaging newspaper article that had cost the business $1.2bn in an investment round.
The claim was ultimately dismissed. In a further lawsuit, filed this year, the lawyer accused Builder AI of using legal strong-arming to 'intimidate' its critics and 'silence' them.
Legal battles
Duggal, meanwhile, is involved in his own legal battles.
Court records in India show that he was issued with a 'non-bailable warrant' and a demand that he come in for questioning in a case related to the collapse of Indian business Videocon, which has been the subject of a high-profile loan fraud investigation. Lawyers for Duggal have said the warrant was 'bad in law' and is 'strongly refuted'. His lawyers have insisted he is a witness in the case. The case is ongoing.
Saurabh Dhoot, another Builder AI co-founder, was in 2023 named on a charge sheet brought by Indian prosecutors alleging a 'criminal conspiracy' at Videocon, which was founded by Dhoot's one-time billionaire uncle.
Dhoot has not been involved with Builder AI since 2022 and has denied wrongdoing in the case. Lawyers for the Dhoot family were contacted for comment.
Duggal stepped down as chief executive of Builder AI in February after the board became concerned that its projected sales for 2024 were way off the mark.
The apparent accounting discrepancies that occurred under Duggal's leadership have come under legal scrutiny in recent weeks. In the days before it said it would file for administration, Builder AI received requests from US prosecutors in New York for information about its sales data, The Telegraph understands.
A 'fake it till you make it' approach has long been an accepted part of the tech world, with founders and start-ups setting out ambitious visions for their products and performance as they hope to woo both investors and staff.
However, investors and lenders have become less tolerant of companies that fall short as interest rates rise and following a series of high-profile failures.
Still, Builder AI's dramatic end came as a shock to staff and shareholders. Investors had just injected 'rescue funding' of $75m to try and shore up the business, an effort that was quickly undone as lenders pulled support.
The Telegraph also understands that Duggal agreed a $300,000 personal loan with Builder AI's chief executive, Ratia, to help meet payroll costs.
The failure of Builder AI threatens to cast a shadow over the UK's AI sector at a time when Britain's start-ups are struggling to compete with their Silicon Valley peers.
According to data from Dealroom, UK AI start-ups have raised about $3.1bn for the latest wave of 'generative' AI tools since 2019. US start-ups, meanwhile, have raised $84bn.
Since his exit, Duggal has not been quiet.
The Builder AI founder has been on panels in Dubai, where he is now based, talking up the Middle East's AI prospects on LinkedIn.
Sources said he has been working independently to try and raise funds to save Builder AI or buy it out of insolvency.
Duggal and his lawyers declined to comment.
The founder did, however, post a note on a group for ex-Builder AI employees, many of whom have just lost their jobs.
'I know this week has been devastating for everyone,' Duggal wrote. 'Not a day goes by since I stepped away that I don't miss the builder energy.'
Cryptically, the 'chief wizard', added: 'I don't think the story is done yet.'