Microsoft-Backed Builder.ai Collapses After Exposing ‘Fake AI’ Operation in India

Builder.ai, a once high-flying AI startup backed by Microsoft and Qatar’s sovereign wealth fund, has filed for bankruptcy after revelations that it had misled investors by passing off manual coding work done by engineers in India as artificial intelligence output.

The London-based company, previously valued at $1.5 billion, promoted its app development platform as being powered by an AI assistant named “Natasha.” Its promise: building apps would be as easy as ordering pizza. But behind the scenes, around 700 engineers in India were reportedly writing code by hand, while the company marketed their output as AI-generated.

Builder.ai raised over $445 million from major investors, including Microsoft and Qatar Investment Authority. But in May 2025, lender Viola Credit froze $37 million in company funds after discovering Builder.ai had inflated its 2024 revenue forecast by 300%. Founder Sachin Dev Duggal had claimed $220 million in sales, but an independent audit found actual revenue was closer to $50 million.

This wasn’t the first red flag. As early as 2019, The Wall Street Journal had reported that the company relied heavily on human coders. A former employee, Robert Holdheim, sued Builder.ai in 2019 for $5 million, alleging he was terminated for raising concerns that its tech “did not work as promoted.”

The full scale of the deception came to light after Duggal was replaced by the new CEO Manpreet Ratia in February 2025. Ratia uncovered extensive financial irregularities and turned over documents to U.S. authorities. Prosecutors in New York have now launched a federal investigation into the company’s operations.

Builder.ai’s collapse marks one of the biggest startup failures in the post-ChatGPT AI investment wave. The company owes $85 million to Amazon and $30 million to Microsoft in cloud computing fees, while nearly 1,000 employees have been laid off.

The scandal has intensified scrutiny of “AI washing” a trend where companies misrepresent traditional services as AI-powered to attract investor capital during the ongoing AI boom.