AI's Third-Largest Builder Bankrupts After $1.5 Billion Accounting Fraud, Cash Flows Down to Zero, Sovereign Wealth Fund Investment
Builder, the world's third-largest AI company, went from a $1.5 billion unicorn to a cash-only unicorn after accounting fraud reduced its cash flow to zero.
Based in the UK and India, Builder.ai was a buzzworthy AI company with a media-savvy CEO, prominent investors on three continents, a partnership with Microsoft, and a thriving business building apps for small and medium-sized businesses.
The New York Times reported on the 31st, "Two years ago, Fast Company magazine named Builder the third most innovative company in AI, behind OpenAI and Google's DeepMind."
The Times continued, "Last winter, Builder's board discovered that its revenue had been significantly overstated, and its CEO resigned.
Headquartered in London with operations in India and California, Builder went from a $1.5 billion unicorn to bankruptcy in a matter of months, and is currently in liquidation in a Delaware court." Builder's fourth and final funding round was led by the Qatar Investment Authority, a sovereign wealth fund, in 2023, and from then on, "AI" appeared immediately after the company's name in press releases.
The New York Times reported that investors poured a total of $450 million into the company, including Microsoft, SoftBank's Deepcore incubator, Hollywood investor Jeffrey Katzenberg, Palo Alto Networks CEO Nikesh Arora, and New York venture firm Insight Partners.
Last winter, Builder's board of directors was trying to understand why the company was so cash-strapped despite its rapid growth.
The board discovered that revenue had been significantly overstated, according to internal documents and two people who spoke about the finances on condition of anonymity due to legal sensitivity.
According to one of the people and the internal documents, the company's revenue for fiscal 2023 was reported as $157 million, but was actually $42 million. In fiscal 2024, the company reported $217 million in revenue, compared to an actual $51 million, widening the accounting discrepancy.
Builder failed to pay its bills and owed $75 million to Amazon Web Services, a person familiar with the matter told the New York Times.
Founder Duggal resigned after a board investigation.
Builder's growth strategy hinged on AI becoming inescapably ubiquitous.
Despite all the life-changing nature of AI, success often hinges on old-fashioned "publicity," and Builder epitomized this.
In the AI chatbot race, consistent media coverage is not just noise; it's the driving force behind adoption and growth, according to a recent study by Indian consulting firm One Little Web.
Builder took that idea to heart, pouring money into publicity rather than product development. Builder.ai attended the Web Summit conference in Lisbon last fall, became a Gold Partner (the second-highest level of partnership) at TechCrunch Disrupt in San Francisco, and then at the Gitex Global conference in Dubai, Builder unveiled "Natasha," what it calls its first AI program manager.
"Natasha" is designed to make building websites and apps as easy as ordering a pizza, with the tagline, "Tell Natasha what you want, and she'll build it."
The ad, released on YouTube, reads:
"You know what I mean: How is all this possible?" Then she whispers: "It's basically magic."
<Software development has long been a bewilderingly complex process, and we still get asked a lot about how Builder.ai can make it easy, fast, and affordable. Meet our secret weapon, Natasha (wink).
We leverage a library of reusable functions and a global network of vetted experts to help you develop on-demand, custom software in a fraction of the time and cost. Our aftercare product, Builder Care, keeps your software up to date, and for businesses that need infrastructure for growth, our cloud solution, Builder Cloud, integrates top vendors into a single platform to offer the best pricing.>
According to internal documents reviewed by the New York Times, as the AI craze took off in 2024, Builder spent approximately $42 million on marketing, or 80% of its revenue.
As Builder grew to 1,500 employees, its brand spending quadrupled over the year.
CEO Duggal called himself Builder's "chief wizard." He was a familiar figure at conferences and on television, wearing a lucky sweater—a memorable, multi-colored sweater that enhanced his personal brand.
In media interviews, he confidently talked about the "global liberation" that AI would bring.
"What we're seeing with AI is a shift that allows the more creative parts of human nature to come into play," he said in a 2023 CNBC interview. Software programming is a arduous and highly skilled task, one that only skilled coders can perform.
The concept of creating software without programming is called "no-code coding," or, as the newly coined term suggests, "vibe coding."
Della promoted the idea that "you simply trust the AI," and some media outlets have labeled it "magic."
Fast Company named Builder the third most innovative company in AI, six spots ahead of Nvidia, currently the world's most valuable company.
Fast Company told the New York Times that companies are judged based on their applications, although there is a small admission fee.
Fast Company praised Builder for solidifying its "new partnership with JPMorgan Chase to sell Builder products to the financial services giant's customer base."
A spokesperson for the bank, however, said Builder "was never a vendor."
The Fast Company spokesperson called Builder's decision in the bankruptcy "unfortunate."
Builder won the EY Entrepreneur of the Year award in the UK in 2024. EY organizers said the award honors those who demonstrate "courage, perseverance, and resilience in overcoming significant obstacles."
Mr. Duggal then entered a global competition with the same glamor as the Academy Awards.
Mr. Duggal, a British citizen, was a serial entrepreneur who started with desktop visualization software 20 years ago, then created a photo-sharing app, and then founded Engineer.ai in 2016. In 2018, he hired an American executive, Robert Holdheim, to run the business.
Mr. Holdheim lasted only a few months. In February 2019, he filed a lawsuit in Los Angeles against Engineer.ai and Mr. Duggal, alleging that he was fired for pointing out problems with the startup.
Earlier this year, the U.S. Securities and Exchange Commission (SEC) filed a fraud complaint against a San Francisco couple, alleging that an AI chat company defrauded investors.
In New York, prosecutors charged an entrepreneur with defrauding investors with his shopping app, which turned out to be Della's contractor in the Philippines. David Gerard, who runs the popular investigative site Pivot to A.I., told the New York Times that "fake AI has been rampant in Silicon Valley for a long time, but it's really come out of the bubble."
He added, "If you want funding, you just have to say a lot of AI words like 'machine learning,' 'large-scale language models,' and 'this is the future.' You don't have to actually have AI."
Founded in 2016 as Engineer.ai, Builder offered a platform for companies to get apps and other software tools built for them.
Della didn't make a strong AI pitch for its first few years.
Della CEO Sachin Dev Duggal used 150 words to promote the company when it secured its first major venture investment in 2018, and "A.I." was one of them.
The website currently uses the following headline: <Engineer.ai Raises $29.5M Series A for AI+Humans Software Building Platform>
Engineer.ai, headquartered in London and Los Angeles, was launched two and a half years ago on an invitation-only basis, bootstrapped by its founders.
The platform combines AI with a crowdsourced team of designers and developers to build custom digital products at twice the speed and less than a third of the cost of traditional software development.
Today at Web Summit, the company announced it has raised $29.5 million in Series A funding, one of the largest in Europe, led by Lakestar and Jungle Ventures, with participation from SoftBank's DeepCore.
This round is one of the largest in Europe to date.
Engineer.ai's "Builder" product breaks projects down into small "building blocks" of reusable functionality customized by human engineers around the world, making the process less expensive than traditional processes.
In a statement, founder Sachin Dev Duggal said, "We created Engineer.ai to enable everyone to build ideas without having to learn to code. This round validates our approach to making custom software easy. This capital comes at a time of rapid growth and will help us bring our platform mainstream, opening doors for entire categories of companies that Builders previously couldn't consider."
Della had fewer than 15,000 web addresses ending in ".ai" in its first year.
The .ai top-level domain, originally developed for the Caribbean island of Anguilla, has become popular with startups seeking to imply an understanding of artificial intelligence.
According to Domain Name Stat, about 1,500 .ai addresses were created each day this summer.
The New York Times reported, "At the current rate, the total number of .ai addresses will exceed 1 million by Thanksgiving this year." "By rough comparison, The number of online ventures founded during the dot-com era in the late 1990s is estimated at 10,000,” he said.
Builder's fourth and final funding round was led by the Qatar Investment Authority, a sovereign wealth fund, in 2023. This time, the press release included the word "AI" as the third word, right after the company name.
The press release was titled "Builder.ai Announces $250M Series D Led by QIA to Push New Boundaries for AI-Powered Composable Software Platforms," and AI appeared for the third time.
In South Korea, where the AI investment craze is rife, many AI strategists are emulating this trend, and the Lee Jae-myung administration is using these AI-driven strategists' excessive AI hype to drive up stock prices.
To understand this, here is the full press release:
<LONDON and DOHA, QATAR, May 23, 2023 (GLOBE NEWSWIRE) — Builder.ai, an AI-powered composable software platform designed to be simple and accessible, enabling everyday businesses and individuals to transform their ideas into software. Builder.ai® today announced over $250 million in Series D funding.
The new investment, led by the Qatar Investment Authority (QIA), brings the company's total raised to over $450 million and its valuation up to 1.8x.
The latest capital round will fuel the company's continued industry leadership and innovation pipeline, enabling further investment in talent, partnerships, and technology.
The company prioritizes using human conversation as the primary user interface for people to build software, rather than the specialist-heavy white canvas systems seen in the no-code/low-code space.
With customer demand reaching record highs and AI evolving day by day, the company has nearly doubled its headcount since January 2022 and expanded its UK headquarters footprint by opening four new offices since 2021, including those in the US, UAE, Singapore, and France.
Continued investor support, combined with strategic partnerships, customer tailwinds, and acclaimed industry innovations, has driven the company's 2.3x revenue growth and over 40,000 features deployed to customers last year. This helped fuel momentum.
The Series D round included participation from additional existing and new investors, including Iconiq Capital, Jungle Ventures, and Insight Partners.
Sachin Dev Duggal, Chief Wizard and Founder of Builder.ai, said, "Builder.ai was founded on the promise that everyone should be empowered to unleash their human potential.
Today, this means building software that can do more with less.
We are entering an incredible era in history where the very concept of software is changing.
From having a shelf life of years to eventually having a shelf life of conversations, the amount of things being built will increase exponentially."
Duggal said, "With the support of our investors and the dedication and drive of our team, we have further empowered ourselves to unleash our own potential. Our growth strategy has always been driven by our DNA of doing more with less, and this is interwoven with a shared vision with our customers around the world as we all push the boundaries to do more.
This is what drove our first round of investors in 2018 and what drives this Series D round today. Our team is already investing this capital in our AI and automation capabilities to not only keep pace with a rapidly changing industry, but also to empower our customers while leading the charge to use new frontier technologies responsibly,” said Ahmed Ali Al-Hammadi, CIO of Europe, Turkey, and Russia at QIA. “QIA is excited to partner with a leader in this space. We are confident that Builder.ai’s innovative technology and proven approach will position the company for significant future growth.” This investment aligns with QIA's strategy to support innovative companies shaping the future of the global economy," he said. (Omitted)
Founded in 2016, Builder.ai continues to lead the industry with its AI-powered composable software platform that enables anyone with an idea to build apps (web or mobile) faster and 70% cheaper.
Breaking software into reusable, Lego-like features, combined with customization from a managed network of designers and developers on a human-assisted, AI-powered assembly line, has been key to Builder.ai's performance and the successful digital transformation of its customers worldwide.
The brand has also strengthened its partnership with Microsoft to include a holistic global GTM and reseller program, and has partnered with JP Morgan & Chase, Etisalat UAE, and other technology and financial companies.
These partnerships, along with the company's visionary application of AI, have led to Builder.ai being featured on Fast Company's list of the most innovative companies in 2023, winning the Europas "Scale-up of the Year" award in 2022, and receiving the 2021 BAFTA Award for "Best Global Enterprise" in 2022. Not only has it been firmly established in the Gartner® Magic Quadrant™ for Multi-Experience Development Platforms (MXDP) and Market Guide 2022 MXDP, but it was also included in the final consideration round for the Gartner® Magic Quadrant™ for Low-Code Application Platforms (LCAP) 2022.>
According to the US lawsuit, Della maintained two sets of ledgers: one with fake numbers for investors and the other with real numbers.
The lawsuit states that Engineer.ai had only a small number of customers, most of whom were dissatisfied with the product.
Holdheim's lawsuit, which was subsequently dismissed, explicitly compared the company to Elizabeth Holmes and her healthcare startup, Theranos, stating that "all AI startups are 'smoke and mirrors.'"
Holdheim confronted CEO Degal about this in the lawsuit, and Degal responded, "All tech startups exaggerate to raise money. He quoted him as saying, "Money is what enables us to develop technology."
President Lee Jae-myung stated in his 8.1% budget increase for next year, "We cannot make the mistake of leaving the field fallow because we lack seeds to sow. It is common sense and natural to prepare for farming by sowing seeds, even if we have to borrow them."
He announced on the 28th that he would prepare for AI investment by "paying down payments for unproven seeds and purchasing them in bulk," investing 10 trillion won, establishing a 100 trillion won "investment fund," and issuing government bonds worth 100 trillion won annually, up from 728 trillion won.
Minister of Science and ICT Bae Kyung-hoon allocated 21.5% of next year's record-breaking 23.7 trillion won (a 12.9% increase from the previous year) to AI, and announced on the 1st, "We will overcome the low-growth crisis facing our country by making artificial intelligence and science and technology the two pillars of innovative growth." Minister Bae stated on the 29th, "We must achieve success in the AI business within two to three years."
He added, "The government will serve as a catalyst to create a market ecosystem, so I earnestly urge companies to revitalize the ecosystem and reinvest."
Minister Bae continued, "If companies, including cloud service providers, struggle to remain competitive in the AI market, reinvestment will be difficult, and a healthy ecosystem will be difficult to create across the entire market." To foster profitability for cloud service providers based on AI infrastructure within three years, the government hastily revised its plan to "secure 50,000 graphics processing units (GPUs) by 2030" just a month ago to "secure 37,000 GPUs by next year," confirming it as a "national public relations project to create technology with money."
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