Builder.ai, a Microsoft-backed AI startup once valued at $1.2 billion, files for bankruptcy: Is AI becoming another .com bubble?

The Fall of Builder.ai: The First AI Domino

Builder.ai, a $1.2 billion AI startup that promised anyone could build apps without writing a single line of code using its assistant “Natasha,” has filed for bankruptcy.

Just months ago, it looked unstoppable. At one point, Builder.ai was riding high in London’s startup scene. It wasn’t just another AI company—it was the one.

The company had raised $445 million, closed a $250 million Series D, employed over 1,500 people, and carried the kind of hype most startups only dream about. Backed by Microsoft and Qatar’s sovereign wealth fund, Builder.ai positioned itself as the future of software development—no coding required, just AI.

Now it’s gone.

“Having raised $445 million from investors including Microsoft Corp. and SoftBank Group Corp., the British firm entered insolvency proceedings this week after a major creditor seized $37 million from its accounts, leaving $5 million in the company’s coffers,” Bloomberg reported.

Founder Sachin Dev Duggal knew how to sell the dream. He had presence, polish, and a story people wanted to believe: a no-code future where software built itself. Investors jumped in. The pitch was simple and sharp: Builder.ai would make developers obsolete.

Then it all collapsed.

The Sudden Collapse of Builder.ai

By May 2025, Builder.ai was bankrupt. The valuation vanished. So did the dream. It was the first billion-dollar AI startup to fall apart completely, leaving behind frustrated customers, laid-off employees, and a much bigger question: Is this the beginning of the end for AI hype?

The Mirage Unravels

The company’s story didn’t just fall apart—it was exposed.

In its investor pitch, Builder.ai claimed $220 million in revenue for 2024. The real number? Just $55 million. That’s not a rounding error—that’s a 300% exaggeration. And somehow, Microsoft didn’t flinch. Neither did Qatar. Everyone wanted in on the next big thing in AI, and Builder.ai talked a good game.

But the tech wasn’t what it seemed. A 2019 report by the Wall Street Journal had already cracked the surface. The company’s so-called “AI” wasn’t doing much. Behind the curtain were hundreds of engineers in India and Ukraine, manually coding what was being advertised as automated magic. Customers were getting real apps, sure—but the automation pitch was mostly fiction. It was outsourcing, dressed up with an AI chatbot on the front.

WSJ is not alone. Former Builder.ai employees told Bloomberg News the company had been overstating its sales to investors, forcing a quiet revision of its revenue projections in March. But sales weren’t the only thing being exaggerated. When I investigated the company back in 2019, insiders revealed that the so-called AI-driven app building was mostly powered by software developers in Ukraine and India, not automation.

Then came the spending.

To stay afloat, Builder.ai borrowed $50 million from Viola Credit. But the burn rate was massive. The company had 770 employees, fancy offices, and no brakes. Debts piled up—$85 million owed to Amazon, $30 million to Microsoft. When Viola suspected that loan terms were being violated, they didn’t wait. They yanked $37 million from Builder.ai’s accounts, leaving just $5 million behind.

That was the final nail.

The Final Crash

Sachin Dev Duggal exited the stage in February 2025. He handed over the reins to Manpreet Ratia, a seasoned operator known for cleaning up messy situations. Ratia moved fast—cut 270 jobs, slashed expenses, and tried to steady the ship. For a brief moment, it looked like Builder.ai might survive.

Then Viola drained the cash.

In May, Builder.ai filed for bankruptcy. The platform froze. Clients—startups, small businesses, founders chasing their tech dreams—were left with half-finished apps and no support. One furious founder summed it up in a post on X: “$65k down the drain. Builder.ai didn’t build sh*t.”

Backlash exploded online. People dug into Builder.ai’s marketing claims. Duggal’s sudden pivot to “consulting” raised eyebrows. One photo, showing graffiti scrawled on the shuttered Shoreditch office, went viral:
“AI lied. We died.”

Meanwhile, Builder.AI has since taken down its website. Visitors are now greeted with a bare-bones message:

For customer enquiries, please contact customers@builder.ai.
For capacity partner enquiries, please contact capacitynetwork@builder.ai.

This wasn’t just another failed startup. It felt like the first major crack in the AI gold rush.

Is AI Becoming Another .com Bubble?

Builder.ai’s bankruptcy, as a Microsoft-backed $1.2 billion darling, isn’t just a corporate corpse—it’s a flare in the AI sky. The parallels to the .com bubble of 2000 are chilling: sky-high valuations, shaky business models, and a cult of hype that masks reality. But is AI doomed to crash like Pets.com, or is it built on sturdier ground? Let’s break it down.

Echoes of the .com Bust

Hype-Driven Valuations
Builder.ai had a billion-dollar valuation while making just $55 million. That’s straight out of the dot-com playbook. And this isn’t an isolated case. According to Crunchbase, AI startups raised $60 billion in 2024 alone, many with unproven products and no real revenue. It’s Webvan déjà vu.

AI Washing
Slapping “AI” on a business plan is the new “.com.” Just like in the early 2000s, when every company added a web address to boost its valuation, startups today are riding the AI label hard, even if there’s no real tech behind it. Builder.ai promised automation, but behind the curtain were humans writing the code.

“AI ‘washers’ can’t exaggerate their way out of this one. The collapse of a high-flying startup may mark a broader decline in the practice of secretly using humans behind a curtain,” Bloomberg wrote.

Gold Rush Mentality
VCs are throwing money at anything that looks like AI. In 2023, AI scooped up 20% of all global VC funding, according to CB Insights. The urgency to invest first and ask questions later mirrors the exact mindset that flooded the dot-com era with companies like Kozmo.com.

Overcrowding
There are thousands of AI startups pitching similar tools—chatbots, app builders, image generators. It’s a sea of lookalikes, and most are fighting for the same dollars. Back in 2000, it was e-commerce. Now, it’s AI. The result could be the same: a mass extinction event for copycats.

Why AI Might Not Pop

Real Results
This time, the core tech isn’t imaginary. Tools like GitHub Copilot are already boosting developer productivity. In healthcare, AI startups like Insilico Medicine are developing new drugs and attracting big funding—$400 million in 2024 alone. McKinsey estimates AI could add $13 trillion to the global economy by 2030. That’s a far cry from sock puppets selling dog food.

Big Tech’s Full Buy-In
Back in the dot-com era, startups were running solo. This time, giants like Microsoft, Amazon, and Google are fully embedded. They’re building AI directly into their cloud products, enterprise tools, and platforms—and they have the financial muscle to sustain it.

A More Grounded Market
The AI industry is already seeing consolidation. According to PitchBook, AI-related M&A deals hit $30 billion in 2024. Stronger players are acquiring weaker ones. Unlike 2000, when few companies had working business models, today’s top AI players like OpenAI and xAI are already making real money.

Tighter Oversight
Regulations are finally catching up. The EU’s AI Act and pending U.S. rules are adding pressure on startups to prove their claims. That extra scrutiny could help filter out Builder.ai-style exaggerations before they implode.

Final Thoughts

Builder.ai going belly-up isn’t the end of AI. But it’s a wake-up call.

Hype is running hot. Founders are making big claims. Some, like Duggal, are walking away right before everything blows up. It’s no wonder posts on X are calling AI “crypto 2.0” or “dot-com on steroids.”

Still, AI isn’t built entirely on hot air. The technology is delivering in many areas, and big players have enough real traction to weather the shakeouts. But that doesn’t mean we won’t see more companies collapse.

According to Crunchbase, interest rates are up. VC funding fell 15% in Q1 2025. That alone will wipe out startups with weak balance sheets and empty promises.

The companies with real products, real revenue, and actual tech will survive. The rest? They’ll end up like Builder.ai, just another cautionary tale, remembered for what it promised and how hard it fell.

Builder.ai founders