A once-celebrated British AI start-up, Builder AI, valued at £1 billion, has dramatically collapsed, leaving hundreds of staff unpaid and sparking controversy over its financial practices. The company, which aimed to simplify app development through "human-assisted AI," faced a swift downfall after lenders withdrew funding due to vastly overinflated sales forecasts and alleged accounting irregularities.
The Sudden Demise of a Unicorn
Builder AI, founded in 2016 by Sachin Dev Duggal, achieved unicorn status with a valuation of $1.5 billion (£1.1 billion), attracting significant investment from entities including Microsoft and Qatar's sovereign wealth fund. The company's promise was to make app building as easy as ordering a pizza, utilising a chatbot named Natasha supported by human contractors. However, this ambitious vision unravelled rapidly in May, leading to the loss of approximately 1,000 jobs.
Financial Irregularities and Leadership Changes
The primary catalyst for Builder AI's collapse was the revelation of wildly unrealistic sales forecasts. The company had projected sales of $220 million for 2024 to lenders, but actual sales for that year came in at a mere $50 million. This significant discrepancy led lenders, including Viola Credit, to pull $40 million from the company's accounts, citing covenant breaches and leaving the business with virtually no cash.
- Sachin Dev Duggal, the founder, was ousted in February and replaced by Manpreet Ratia of investor Jungle Ventures.
- New York prosecutors reportedly issued a subpoena to Builder AI prior to its collapse, seeking information on its accounting practices.
- An investigation into the sales shortfall raised concerns about potentially inflated sales and circular transactions in previous years.
Unpaid Staff and Administrative Limbo
Hundreds of former UK-based staff have been left in a precarious position, unable to access redundancy payments. This is largely due to the company's failure to formally appoint administrators in Britain, where its main operations were based, despite filing for bankruptcy in the US. Without a case number from restructuring advisers, employees cannot claim from the Insolvency Service.
- Around 200 UK staff have not received any money since April.
- Former employees express frustration over a lack of communication and proper closure.
- Advanced talks are underway for a potential pre-pack administration, which would involve selling remaining assets to generate funds for creditors, including ex-staff.
Controversies and Legal Battles
Builder AI's history is marked by several controversies, including a 2019 lawsuit by a former employee, Robert Holdheim, who alleged the company's technology was "smoke and mirrors" and overly reliant on human contractors. Although settled, the lawsuit highlighted concerns about the company's claims regarding its AI capabilities. Founder Sachin Dev Duggal has also been involved in legal battles, including a non-bailable warrant in India related to a loan fraud investigation, which his lawyers dispute.
The Aftermath and Future Outlook
The collapse of Builder AI casts a shadow over the UK's AI sector, raising questions about the sustainability of ambitious tech start-ups in a more scrutinised financial climate. While Duggal has reportedly explored a rescue bid, it was rebuffed. The company expects to proceed with formal filings in the UK in the coming weeks, aiming for a pre-packaged administration to salvage parts of the business and address creditor claims.
