At least for now. This story of how Builder.ai became the biggest AI fraud in startup history couldn’t wait for tomorrow’s kitchen sink: it’s just too wild!
According to this article in Medium (The $450 Million Lie: How Builder.ai Became the Biggest AI Fraud in Startup History, available here), Builder.ai, a billion-dollar AI company that raised $450 million from Microsoft, Qatar Investment Authority, and SoftBank collapsed last month, leaving behind a trail of financial fraud, fake technology, and shattered dreams.
Builder.ai burst onto the scene in 2016 with a seductive promise: “Build apps like ordering pizza.” The London-based startup claimed to revolutionize software development through artificial intelligence, making custom app creation so simple that anyone could do it without coding knowledge.
Their pitch was irresistible. CEO Sachin Dev Duggal, who styled himself as “Chief Wizard,” promised to build apps 6x faster and 70% cheaper than traditional development. At the heart of this promise was “Natasha,” an AI assistant that supposedly orchestrated the entire development process automatically.
By 2023, Builder.ai had achieved unicorn status with a valuation exceeding $1.5 billion. Microsoft made a strategic investment and integrated Builder.ai into Teams, giving the startup access to 280 million monthly users. The tech giant even announced plans to integrate Builder.ai’s platform with Azure and AI services.
That’s how highly regarded Builder.ai was regarded. But it wasn’t what it purported to be.
In 2019, The Wall Street Journal published a devastating investigation. Their findings were damning: Builder.ai’s much-vaunted AI was largely a facade. Behind the sleek interface and promises of automation were hundreds of human developers in India and Ukraine manually coding what was being marketed as AI-powered magic.
What?!?
Yep, that’s right, the platform couldn’t actually “build” anything autonomously, yet clients were paying premium prices for manual code assembly. This was 2019. I guess they thought “ai” stood for “always Indians”! 🤣
As the article notes: “Despite this early exposure, investors continued pouring money into the company. The AI hype was too strong, and Builder.ai’s marketing too compelling for due diligence to prevail over FOMO.”
Seriously, what?!?
That’s not all. In 2023 and 2024 respectively, Builder.ai claimed revenue of $180 million and $220 million. Actual revenue in each of those years: $45 million and $55 million respectively – a 300% markup each year. Builder.ai operated without a Chief Financial Officer from July 2023 through its collapse in May 2025, yet continued to raise hundreds of millions.
The article also discusses an alleged “round-tripping” scheme between Builder.ai and VerSe Innovation, where both companies allegedly invoiced each other for similar amounts without actually rendering services to artificially inflate sales figures.
The evident house of cards collapsed last month. Viola Credit, which had lent Builder.ai $50 million in 2024, discovered covenant breaches related to the overstated sales figures. Their response was decisive: they seized $37 million on May 15 from Builder.ai’s accounts, leaving only $5 million in restricted Indian accounts. Six days later, there was a public bankruptcy announcement, with layoffs across five countries to follow.
The internal email from CEO Manpreet Ratia (who replaced Duggal in February 2025 and apparently “immediately discovered the true extent of the financial catastrophe”) to employees was stark: “With no viable alternatives, the Board has made the extremely difficult decision to enter into insolvency.”
As the article notes, Builder.ai pioneered “AI washing” — wrapping traditional services in AI marketing speak – and claims that “potentially hundreds of companies” are “making similar false claims”. We’ll see. But, for now at least, Builder.ai is the biggest AI fraud in startup history, duping sophisticated investors like Microsoft and Qatar’s sovereign wealth. It will be interesting to see what lessons are learned from this.
BTW, the “author” of this article is “NeuralNiki”, which is listed at the author of about 15 AI-related articles since the beginning of the year. Other than a very short bio (“I write about cutting-edge tech trends and industry transformations, sharing insights that inspire and inform.”) and a cartoon picture of a robot, there is no information about “NeuralNiki”, including whether this is a real person or a bot. This article looks a lot like a Deep Research like report, with a lot of bullet points, “key takeaways”, and citations to several sources at the end, seems very “bot-like”. FWIW.
So, what do you think? Is this the biggest AI fraud in startup history? Please share any comments you might have or if you’d like to know more about a particular topic.
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