Builder.ai's Collapse: A Cautionary Tale for AI-Driven Startups and Investors

Builder.ai coded itself into a corner - now it's bankrupt

Comment The collapse of Builder.ai has cast fresh light on AI coding practices, despite the software company blaming its fall from grace on poor historical decision-making. Backed by Microsoft, Qatar's sovereign wealth fund, and a host of venture capitalists, Builder.ai rose rapidly to near-unicorn status as the startup's valuation approached $1 billion. The company's business model was to leverage AI tools to allow customers to design and create applications, although the Builder.ai team actually built the apps. Blue-chip investors poured in cash to the tune of more than $500 million. However, all was not well at the startup. The company was previously known as Engineer.ai, and attracted criticism after The Wall Street Journal revealed in 2019 that the startup used human engineers rather than AI for most of its coding work. Builder.ai grew more forthcoming about the human factor, but the company came unstuck over its finances. It appointed a new CEO, Manpreet Ratia, in February 2025, taking over from founder Sachin Dev Duggal, whom the company credited with "transforming software development through AI-powered innovation." It fell to Ratia to inform employees during a May 20 call reported by the Financial Times that the company was filing for bankruptcy as funds abruptly ran out. Builder.ai was reportedly "unable to recover from historic challenges and past decisions that placed significant strain on its financial position." While the failure of startups, even one as high profile as Builder.ai, is not uncommon, the company's reliance on AI tools to speed coding might give some users pause for thought. The tech industry is generating a tsunami of AI slop, along with a few instances of true value. In the coding world, generative AI can make for useful coding assistants but are often less than helpful when expected to behave like an engineer. An amusing thread on Reddit titled "My new hobby: watching AI slowly drive Microsoft employees insane" linked to several GitHub threads in the .NET runtime repo in which humans patiently handhold the GitHub Copilot coding agent as it makes mistake after mistake, many of which would make a junior developer blush. It all feels a bit Mechanical Turk, except for coding rather than chess, and the intervention of a human being is all too evident. One commenter said: "The amount of time they spend replying to a friggin LLM is just crazy... It's also depressing." Last month, Microsoft CEO Satya Nadella boasted that 30 percent of the code in some of the tech giant's repositories was written by AI. As such, an observer cannot help but suspect some passive aggression is occurring here, where a developer has been told that the agent must be used, and so they are going to jolly well do it. After all, Nadella is not one to shy from layoffs. The problem highlighted by both the pull requests in the .NET runtime repo and the failure of Builder.ai is that regardless of the wishful thinking from tech giants seeking their next big growth opportunity, startups pitching the latest and greatest innovation, and execs seeking to trim their budgets at the expense of engineers, generative AI tools are not a universal panacea. Although Builder.ai's fall has roots in financial mismanagement and forecasts that were arguably over-optimistic, the company was a darling of the generative AI coding industry and an example of how a business can optimize its processes through the application of the technology. The fact that it wasn't able to convince enough customers to pay it enough money to stay solvent should give pause to those who see generative AI as a replacement for junior developers. As the experience of the unfortunate Microsoft staffers having to deal with the GitHub Copilot Agent shows, the technology still has some way to go. One day it might surpass a mediocre intern able to work a search engine, but that day is not today. ®

Builder.ai collapse exposes dangers of 'FOMO investing' in AI

The collapse of Builder.ai exposes the growing threat of "FOMO investing," according to an expert in tech growth intelligence. Builder had become one of Britain's best-funded startups, but is now filing for bankruptcy due to financial problems. The insolvency comes after enormous sums were invested into the business. Big-name backers including Microsoft and Qatar's sovereign wealth fund had poured a total of over $500mn into the startup, which aimed to simplify software development with AI. The funding gave Builder a coveted unicorn status, with a valuation exceeding $1.3bn. But the eye-watering sums couldn't keep the business afloat. Builder blamed the downfall on "historic challenges and past decisions" that strained its financial position. The company has been accused of inflating sales figures under the leadership of Sachin Dev Duggal, the startup's founder. Duggal stepped down as CEO in February, but retained the role of "chief wizard." His replacement as chief executive, Manpreet Ratia, told employees this week that the company was filing for bankruptcy. Ratia said "unexpected and irreversible action" from lenders had triggered the company's collapse. Carrie Osman, CEO of growth intelligence firm Cruxy, highlighted another cause: "FOMO investing." "Technology like GenAI has been massively overhyped in recent years and investors and boards are under increasing pressure to find the latest, sexiest uses for AI," she said. "Driven by FOMO rather than fundamentals, investors are rushing into deals with minimal scrutiny, inflating valuations and sidelining due diligence." Her warning comes amid an extended "AI gold rush." Since the launch of ChatGPT in 2022, investors have heavily focused their funds on artificial intelligence companies. Approximately 40% of last year's US venture cash came from funds that "list AI as a focus," according to a report released this week by Silicon Valley Bank (SVB). In 2021, the proportion was just 10%. SVB also discovered a growing number of "zombiecorns" -- unicorns with poor revenue growth and unit economics. Builder has become another member of the injured flock. Osman warned that more of them are set to emerge. "Microsoft and others failed to capture the true value and ROI from Builder's product and didn't dig below the headlines and hype," she said. "This isn't the first case of disastrous FOMO we've seen over the years, either -- Zymergen, Frank, and Theranos are all famous examples. And as AI washing continues, this won't be the last case."

A Billion Dollar AI Startup Just Collapsed Spectacularly

Image by Ramsey Cardy / Sportsfile for Web Summit via Getty / Futurism 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.