The world, which is all hyped about AI now, finally got a star who is promising to make the process of app building like ordering something online. Microsoft-backed AI startup Builder.ai filed for bankruptcy in 2025. Know what led to its downfall and financial struggles. Now, this Microsoft-backed AI startup has exposed the truth behind AI. Builder.ai was founded in London, and its chatbot, Natasha, is fully able to build apps with just a simple user request. The company has already raised $445 million from a few major backers like Qatar Investment Authority and Microsoft. All this sounds like a perfect creation until the real truth is revealed.
Microsoft-Backed AI Startup Builder.ai Early Warning Signs
The ruble for Builder.ai started back in 2019 when the Wall Street Journal reported that most of the apps of this tool are coded by real humans and not AI. This was really shocking news because the platform, which was getting hype because of its smart AI feature, ended up becoming a fake one. Somehow, this news doesn’t affect the Microsoft-backed AI startup Builder.ai, and the investors still believe in them and keep investing.
In May 2025, the whole round-tripping fraud finally came out. After a lender froze $37 million of Builder.ai money, a certain fact came out with the help of an audit: 700 engineers were working actively on the chatbot Natasha. All the things that were happening behind the chatbot were getting done by humans and not AI. The humans were chatting and giving the code. The work of these people is so unbelievable, but it’s totally fake. This is when the start of the app builder collapse happened.
Microsoft-Backed AI Startup Builder.ai Collapses and Consequences
Microsoft-backed AI startup Builder.ai’s Collapse and Consequences list is long, but here are some major ones:
- Job losses: Now it’s clear that the company was doing fake things, and that led to the loss of jobs for more than 1000 employees. All the people who were part of this lost their jobs, and the company lost all the work they were doing daily.
- Bankruptcy: The Microsoft-backed AI startup filed for bankruptcy in the US, UK, and India. Now they don’t have a huge number of constant customers, but now they surely have a huge loan to pay.
- Unpaid bills: After the app builder collapsed, all work stopped, but still, it will not change the fact that they owed $85 million to Amazon and $30 million to Microsoft for cloud services.
- Leadership change: The founder, Sachin Dev Duggal, stepped down, and Manpreet Ratia took over. The new founder discovered the major financial misreporting. Now the whole company is unbalanced.
- Investigation: U.S. Prosecutors’ New Work opened an investigation to identify the financial records that are still hidden.
Lessons from the Builder.ai Story
Builder.ai pretended to be the one who works with AI and not humans, even after they were almost caught in 2019, and Inevstores also keeps funding them. This whole scenario shows that the greed for money can make some people fearless. All the big sharks like Microsoft avoided the clear red flags, and this also led them towards their own loss, and this is a great lesson from the Builder.ai story to be learned.
In the real world, more than 100 people lost their jobs, and this round-tripping fraud led to the loss of many investors, and the company fully collapsed. Microsoft-backed AI Startup Builder.ai tricked people with their fake tricks, and this also got them into legal action. The company learned that if you try to create something fake so it can stay for a long time, when it collapses, it will lead to a bigger loss than an overall advantage.
