Builder.ai, a startup once valued at $1.5 billion and backed by Microsoft and Qatar’s sovereign wealth fund, has filed for bankruptcy protection following revelations that its highly touted “AI-powered” platform relied heavily on manual labor and that the company allegedly engaged in a years-long financial deception.
For eight years, Builder.ai marketed its “Natasha” AI system as a fully autonomous tool capable of building software with ease. However, internal documents and employee accounts reveal a stark contrast, detailing how hundreds of engineers in Noida and Bangalore manually coded client projects. These engineers were reportedly instructed to mimic AI-generated responses and time updates to coincide with UK business hours to maintain the illusion of automation. A former Bangalore engineer stated, “We were told to never mention our location or use Indian English phrases.”
The company’s collapse accelerated in April 2025 after Bloomberg exposed an alleged round-tripping scheme involving Indian social media firm VerSe Innovation. From 2021 to 2024, Builder.ai and VerSe Innovation purportedly exchanged nearly identical invoices for services never rendered, artificially inflating Builder.ai’s revenue by as much as 300 percent. Subsequent audits revealed Builder.ai’s 2024 revenues were only $55 million, significantly below the $220 million projected to investors. VerSe co-founder Umang Bedi has denied these allegations, calling them “absolutely baseless.”
Microsoft’s significant investment of $455 million in 2023, which included plans to integrate Builder.ai’s technology with Azure, now serves as a cautionary tale. This partnership faltered when creditor Viola Credit seized $37 million from Builder.ai’s accounts after uncovering the inflated financials, leaving only $5 million in restricted funds. Builder.ai also reportedly owes $85 million to Amazon and $30 million to Microsoft for cloud services.
The US Attorney’s Office for the Southern District of New York has issued a subpoena for financial records and customer lists as part of an expanding investigation into potential securities fraud. Concurrently, the SEC is probing whether Builder.ai misrepresented its technological capabilities to investors. Internal communications, including Slack messages and a 2022 internal memo, show executives directing staff to minimize the visibility of human labor in investor materials. The memo explicitly stated, “Positioning must focus on our proprietary AI – human labor isn’t part of the story.”
Founder Sachin Dev Duggal, who adopted the title Chief Wizard, resigned as CEO in February 2025 amidst growing losses and relocated to Dubai. His successor, Manpreet Ratia, disclosed that the company laid off approximately 80 percent of its global workforce, impacting around 1,000 employees.
Builder.ai’s insolvency represents the most notable failure of an AI startup since the breakthrough of ChatGPT in 2022 and underscores the increasing scrutiny surrounding “AI washing” within the tech sector.
