A Billion Dollar AI Startup Just Collapsed Spectacularly

Yahoo

29-05-2025

As the artificial intelligence industry struggles with ever-rising costs — not to mention a steady uptick in hallucinations — investors are getting impatient.
One investment firm went as far as seizing $37 million from accounts owned by Builder.ai, a UK-based AI startup meant to make developing apps "as easy as ordering a pizza." That left the company with just $5 million, according to Bloomberg, prompting its senior lenders to place it into default.
With very little cash left to keep the ship afloat, CEO Manpreet Ratia closed the startup's doors and filed for bankruptcy.
Builder.ai was previously one of the most well-funded tech startups in the game, with over $450 million in backing from sources as big as tech giant Microsoft, Japanese investment firm SoftBank, and the Qatari government's sovereign wealth fund. That gave it a valuation worth over $1 billion, drawing comparisons to Mark Zuckerberg's Meta.
Ratia told the Financial Times the startup was "unable to recover from historic challenges and past decisions that placed significant strain on its financial position," adding that he had been running the business with "zero dollars" in its US and UK accounts.
The CEO took over for Builder.ai's founder and "chief wizard" Sachin Dev Duggal in March, after the latter saddled the business with hundreds of millions worth of debt while burning through its dwindling cash fund, according to FT.
Duggal was likewise embattled in a high-stakes legal probe by authorities in India, who named him a suspect in an alleged money laundering case. For his part, Duggal denied the accusations, saying he was simply a witness, though FT has also reported Duggal heavily relied on the services of an auditor with whom he has close personal ties.
It's not known what, exactly, pushed the first domino. Viola Credit, the company that seized Builder.ai's coffers, has yet to give an explanation, though we can probably guess they saw the writing on the wall and simply hoped to pad their losses.
It's a big moment for the AI industry, as the pressure grows for AI companies to actually come out with a usable — not to mention sustainable — product. Though AI companies accounted for 40 percent of the money raised by US startups last year, the vast majority of them have yet to turn a profit.
Many AI startups struggle to find any consistent revenue stream at all beyond tech-crazed venture capitalists, and a not insignificant number have been caught misleading investors about their AI's capabilities to keep the cash flowing.
Case in point, after Ratia took the helm back in March, Builder.ai lowered its revenue estimates for the last half of 2024 by 25 percent — a major blow for the much-hyped company. The startup was likewise caught trying to pass off human-built software as AI back in 2019.
As auditors and journalists sift through the rubble to find out what went wrong, now makes as good a time as any to take a temperature check on unchecked AI hype.
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