$1.5B AI Startup Crashes After Revelation It Was Just Humans All Along

In recent years, artificial intelligence has been hailed as the future of technology, promising to revolutionize how businesses operate and innovate. Startups claiming to be powered by AI often attract huge investments and attention.

But sometimes, behind the buzz, things are not as they seem. One company that rode this wave has now fallen apart dramatically, raising questions about the reality of some AI startups.

Builder.ai, a British tech company once valued at $1.5 billion, collapsed after it was revealed that much of its AI-powered platform was run by humans pretending to be bots. The startup had marketed itself as an AI-driven platform helping businesses build software with minimal coding, but the truth was quite different.

Instead of AI doing the work, about 700 developers and programmers from India were writing the code, acting like AI bots behind the scenes. The company, which started in 2016, had attracted big-name partners like Microsoft and secured massive funding rounds, including a $250 million investment from the Qatar Investment Authority.

Overall, Builder.ai raised over $450 million from investors such as Microsoft and the International Finance Corporation, part of the World Bank group. Despite this impressive backing, Builder.ai recently filed for bankruptcy and initiated insolvency procedures, as announced on its LinkedIn page last month.

The company is now in liquidation.

According to Bloomberg, the company’s downfall began when one of its main lenders, Viola Credit, withdrew $37 million from a $50 million loan in 2023, leaving Builder.ai with only $5 million in restricted funds. This financial blow made it impossible for the company to keep up with payroll or manage day-to-day operations.

On top of that, auditors were brought in less than two months ago to examine the company’s finances after employees raised concerns about inflated sales figures presented during investor meetings. This scrutiny only added to the company’s troubles.

Earlier this year, Manpreet Ratia took over as CEO from founder Sachin Dev Duggal. Ratia revealed that most of the workforce had been laid off by then, signaling deep problems within the company.

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Sachin Dev Duggal, the company’s former CEO

The truth about Builder.ai’s operations came to light when Linas Beliūnas, director at the financial company Zero Hash, shared findings that the company’s supposed AI was actually a group of human developers pretending to be AI bots.

"Wild: $1.5 billion AI unicorn just collapsed as it turns out their 'AI backend' was just Indian developers pretending to write code," Beliūnas wrote on LinkedIn.

He went further to accuse Duggal of "reporting fake revenue to investors" and expressed disbelief that the company managed to maintain this charade for eight years.

"The Qatar Investment Authority (QIA) is one of the biggest losers in this saga. They led a $250 million funding round two years ago," he added.Getty Images

Instead of actual bots, the company had 700 employees simulating AI behavior.

Following the collapse, Builder.ai plans to file for bankruptcy in all the countries where it operates, including the US, UK, Singapore, UAE, and India. In a statement, Builder.ai said:

"Despite the tireless efforts of our current team and exploring every possible option, the business has been unable to recover from historic challenges and past decisions that placed significant strain on its financial position."

The company also promised to prioritize support for its employees, customers, and partners during this difficult time.

"We will work closely with the appointed administrators to ensure an orderly process and to explore all available options for parts of the business, where possible," the statement said.

It concluded by thanking the people who had been part of Builder.ai’s journey:

"We want to extend our sincere gratitude to our employees for their commitment and hard work, to our customers for their loyalty, and to our partners and suppliers for their support over the years."Instagram

The Reality of AI Startups

The downfall of Builder.ai highlights a significant issue in the startup landscape, where hype often overshadows substance. Dr. Dan Ariely, a behavioral economist, emphasizes that investors are drawn to the allure of AI without fully understanding the technology behind it. He notes that this phenomenon can create a bubble, leading to inflated valuations based on promises rather than tangible results.

In his work, Dr. Ariely suggests that thorough due diligence and a focus on genuine innovation can mitigate such risks. Entrepreneurs should prioritize transparency in their operations to maintain credibility and avoid future pitfalls.

Financial experts like Jean Chatzky advocate for caution when investing in tech startups, particularly those claiming to utilize AI. She points out that investors should ask critical questions about a company's technology and its real-world applications. This approach not only protects capital but fosters an environment where genuine innovation can flourish.

Additionally, Chatzky encourages potential investors to consider the team behind the startup. A strong, experienced leadership team can be a better indicator of future success than flashy marketing or hype. By prioritizing foundational strengths, investors can support startups that are more likely to deliver on their promises.

Builder.ai’s downfall highlights the risks of blindly buying into AI hype. Beneath the glossy marketing and billion-dollar valuation was a business model propped up by hundreds of human developers, not cutting-edge automation.

The collapse shows why both investors and customers should dig deeper before trusting bold tech promises. Transparency, not buzzwords, is what separates real innovation from smoke and mirrors, especially in an industry evolving as rapidly as AI.

Clinical Perspective & Next Steps

The recent crash of Builder.ai serves as a crucial reminder for both investors and entrepreneurs in the AI space. As Gary Vaynerchuk points out, authenticity and transparency are vital. Companies must demonstrate real value and innovation rather than relying on buzzwords to attract attention.

Building a sustainable business requires a robust strategy and a commitment to genuine problem-solving. By focusing on these principles, both startups and investors can navigate the complexities of the tech landscape and create lasting success.