Builder.ai’s AI Illusion Crumbles: $1.5B Startup Files for Bankruptcy

The Collapse of a Unicorn: Builder.ai’s Fall from Grace

A major AI scandal has rocked the global tech industry as London-based Builder.ai, once a celebrated AI unicorn valued at $1.5 billion, has filed for bankruptcy. The company, which marketed itself as an AI-powered app development platform backed by Microsoft and Qatar’s sovereign wealth fund, is now exposed for having relied largely on manual labor by over 700 Indian engineers—who were effectively posing as AI.

What was advertised as rapid, automated app development using a digital AI assistant named “Natasha” turned out to be conventional outsourced coding work. The revelations have not only shattered Builder.ai’s lofty image but also ignited fierce debate over the darker underbelly of the AI gold rush.

Behind the Facade: Human Engineers Masquerading as AI

Builder.ai lured investors and customers with promises of artificial intelligence building complex apps in minutes. In reality, the “AI” was a front for a large, hidden human workforce. According to reports, around 700 engineers based in India were manually coding apps while the company marketed the output as the product of proprietary AI algorithms.

The deception went largely unnoticed for years, even as the startup raised more than $445 million in funding, capitalizing on investor appetite for AI innovation. The company claimed that “Natasha,” its AI interface, could manage and build apps seamlessly—claims now revealed to be little more than elaborate marketing spin.

How It All Unraveled: From Financial Fraud to Executive Shake-Up

The beginning of the end came in May 2025, when lender Viola Credit seized $37 million from Builder.ai’s accounts. The trigger? A forensic audit discovered that the company had grossly inflated its 2024 revenue by 300%. Founder Sachin Dev Duggal claimed Builder.ai had earned $220 million—but actual revenue stood at just $50 million.

The full scope of the misrepresentation surfaced when Manpreet Ratia, a former Amazon executive who replaced Duggal as CEO in February, unearthed internal discrepancies during a financial review. The numbers didn’t add up, and deeper scrutiny exposed the hollow nature of the company’s AI infrastructure.

Now under criminal investigation by U.S. prosecutors, Builder.ai has become the centrepiece of what some are calling the first major case of “AI fraud” in the era of large-scale generative technologies.

“AI Washing”: The Silent Epidemic

The fall of Builder.ai is being seen as the biggest AI startup collapse since the explosion of interest in artificial intelligence following the launch of ChatGPT. But it's more than just one company’s implosion—it’s a wake-up call about a broader trend known as “AI washing”, where businesses rebrand traditional services with an “AI” label to attract inflated valuations and investor attention.

The tech boom has incentivized companies to bend—or outright break—the truth about their AI capabilities. Experts warn that more such revelations are likely as scrutiny grows and due diligence becomes more rigorous in the investment landscape.

Aftershocks: Layoffs, Debts, and a Broken Trust

The fallout has been brutal. Over 1,000 employees have been laid off. The company now owes $85 million to Amazon and $30 million to Microsoft for cloud infrastructure it used—presumably to simulate the appearance of an AI-driven backend.

Builder.ai’s collapse has also raised serious questions about oversight from major backers like Microsoft, who integrated the company into its cloud ecosystem and co-marketing programs.

What began as a promising AI disruptor has ended in disgrace, dragging with its investor capital, customer trust, and hundreds of livelihoods.

A Lesson in Illusion and Accountability

Builder.ai's downfall is more than a bankruptcy—it’s a symbol of unchecked hype in the tech world’s AI frenzy. As the dust settles, this scandal may serve as a turning point for ethical standards in AI innovation, prompting regulators, investors, and customers to demand transparency, verifiability, and proof over promise.

In an era where code can be cloaked in buzzwords and human labor passed off as machine genius, the collapse of Builder.ai is a stark reminder: not all that glitters is artificial intelligence.

(With agency inputs)