Last week, British artificial intelligence startup Builder.ai, backed by Microsoft and the Qatar Investment Authority, filed for bankruptcy after the company’s CEO announced that a major creditor had seized most of the company’s cash.
It was valued at $1.5 billion after a $445 million investment from Microsoft, and the company claimed to use artificial intelligence to create custom applications “in days or weeks” that would result in functional code with less human intervention.
But now they’ve shed their clothes… as Bloomberg reports, they had a “fake it until you make it” strategy while increasing their 2024 revenue estimates by 300%. Instead of artificial intelligence, the company used more than 700 Indian engineers from social media startup VerSe Innovation to write code for years.
Custom application requests were based on pre-created templates and were later customized using human labor to customize requests sent to the company – whose demos and promotional materials misrepresented the role of AI.
According to Bloomberg, Builder.ai and VerSe Innovation routinely billed each other for roughly the same amounts between 2021 and 2024. This is an alleged practice known as “round billing,” which Builder.ai people say was used to inflate the returns it reported to investors. In many cases, these payments were not actually for products or services.
Builder.ai earned nearly $60 million in revenue from VerSe over four years for services such as app development, according to people familiar with the matter. The AI startup, in turn, sent money to VerSe and its subsidiary Quark Media Tech for services such as marketing, according to documents. For the avoidance of doubt, the two companies appear to have mixed up the timing and amounts of the invoices, although both companies ended up spending roughly the same amount, according to the people and the documents. – Bloomberg
VerSe co-founder Umang Bedi said the allegations were “completely baseless and false,” adding, “We are not the kind of company that is in the business of inflating revenue” and stressing that the accusations of round-trip travel are “defamatory and irresponsible.”
The company is now under investigation by both US and UK authorities.
Last week, Bloomberg reported that Viola Credit — which lent the software company $50 million in debt last year — had seized $37 million from Builder.ai accounts, leaving the company with just $5 million, CEO Manpreet Ratia said in an interview Tuesday, where he announced the decision to lay off most of Builder.ai’s employees and said the $5 million was in accounts in India and could not be accessed to pay employees due to restrictions on taking money out of the country.
The move marks a stunning setback for the company, which two years ago raised a $250 million funding round led by QIA, one of the world’s largest sovereign wealth funds. Microsoft also made an equity investment in 2023 as part of a strategic partnership. Less than two months ago, Builder.ai confirmed to Bloomberg News that the company had been forced to lower sales forecasts it had provided to investors and had hired auditors to review two years of reports. The move came in response to Bloomberg’s questions about concerns from former employees that the company had inflated sales numbers. – Bloomberg
The company’s fraud was first mentioned in a 2019 WSJ article that questioned the company’s AI claims – revealing that the platform relied heavily on human subcontractors, with several former employees describing the operation as “entirely engineered, with no AI,” with most of the work being done manually by workers in India.
