$500M startup Builder.ai crashes after fake sales uncovered

Microsoft-backed Builder.ai has collapsed after an internal probe revealed potentially fake sales, leading the company to cut its revenue estimate to just a quarter of what was previously reported.

One of the most well-funded tech start-ups in the UK, Builder.ai raised almost $500 million from well-known investors, including Qatar's sovereign wealth fund. Earlier this week, the company informed employees that it would begin insolvency proceedings after its lenders declared a default.

Builder.ai reportedly submitted provisional accounts to its auditor showing significant drops in previously reported income, prompting the lenders to step in.

According to these estimates, the previously reported 2023 total sales figure of $180 million would be restated to approximately $45 million, while the 2024 revenue estimate of $220 million was lowered to around $55 million, sources said.

The start-up’s founder, Sachin Dev Duggal, supervised the submission of the earlier sales figures to the board. He stepped down as chief executive earlier this year, along with the company’s chief revenue officer, Varghese Cherian.

Duggal, however, retained the honorary title of “chief wizard” and a seat on the board. According to reports, one of the issues preceding Duggal’s exit was that many previously booked sales remained uncollected for long periods.

These long-standing unpaid invoices concerned the board and new management regarding revenue recognition at the company, and they commissioned a law firm to conduct an internal investigation.

The findings of the investigation were reportedly presented to the company’s senior leadership and other stakeholders last week, raising serious concerns about the legitimacy of previously recorded revenues.

The law firm suggested there may have been a deliberate effort to inflate revenues at Builder.ai. The investigation focused on supposed “resellers” - intermediaries who allegedly sold Builder.ai’s products to clients, especially those based in the Middle East.

According to the two sources, the investigation raised doubts about whether some of these resellers were legitimate.

Builder.ai claims its use of artificial intelligence could make building a website or app “as easy as ordering a pizza.”

That pitch attracted blue-chip backers like Microsoft, which is at the forefront of the AI revolution by supporting ChatGPT creator OpenAI.

As previously reported by the Financial Times, the company borrowed $50 million from a group of tech-focused lenders in October. That loan resulted in Builder.ai’s insolvency earlier this month when its funds were seized.

This group of lenders was reportedly led by Viola Credit, Atempo Growth, and Cadma Capital Partners.

The latter is backed by Apollo Global Management, a private capital firm. Builder.ai stated that the company was "focused on the orderly wind down and preserving value for employees" and declined to comment.

Cadma Capital declined to respond. Requests for comment from Duggal, Cherian, and the other lenders remain unanswered.