Microsoft-backed Builder.ai filed for bankruptcy protection in the United Kingdom on 3rd June 2025 after it was revealed that the company had deceived investors and clients by claiming its purported AI solutions were actually based on the manual work of 700 Indian engineers rather than advanced algorithms
The London-based startup, which had previously raised $195 million in funding from investors including Microsoft, Insight Partners, and Lakestar, claimed its AI-powered platform could automatically develop mobile applications, while in reality, the development work was performed by human engineers, thereby misleading users and investors about their technological capabilities.
The company received a $45 million Series D round in 2023, which raised its valuation to $2.12 billion, now completely collapsed following the scandal. According to an investigation revealed by the Financial Times in May 2025, Builder.ai secretly worked with seven different Indian subcontractors employing a total of 700 developers who manually created customers' applications instead of the alleged AI. CEO Sachin Dev Duggal had previously claimed that 80% of applications were automatically generated by the company's AI system, an assertion now proven false, with the UK's Financial Conduct Authority (FCA) and the US Securities and Exchange Commission (SEC) launching investigations into the company for fraud and misleading investors.
After filing for bankruptcy protection, Builder.ai disclosed that it had accumulated $125 million in losses over the past 12 months and would need to lay off 75% of its nearly 300 employees. The scandal has highlighted concerns about the AI investment mania, as the company successfully secured significant funding merely by referencing AI technology and operated for five years before the deception was uncovered. The company's downfall has raised broader concerns about the AI industry, where Gartner's analysis indicates at least 40% of startups marketing themselves as AI companies actually lack significant AI technology, highlighting the sector's lack of transparency and investors' excessive enthusiasm for businesses labelled with AI.
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Microsoft-backed Builder.ai filed for bankruptcy after it was revealed that the company replaced AI claims with human engineers, leading to its downfall.
Builder.ai, once valued at over $1.2 billion and backed by Microsoft, has filed for bankruptcy after revelations that its 'AI' platform was powered primarily by human engineers posing as chatbots. The company also inflated revenue projections by up to 300%, leading to a federal investigation into potential investor fraud.
Jon Swartz
