Microsoft-backed startup Builder.ai to file for insolvency

Builder.ai, the British artificial intelligence startup backed by Microsoft Corp. and the Qatar Investment Authority, will file an insolvency case after overstating sales figures it provided investors.

“The business has been unable to recover from historic challenges and past decisions that placed significant strain on its financial position,” Builder.ai said in a statement Tuesday. The firm will appoint an administrator to manage the company’s affairs, it added.

The proceedings mark a stunning fall from grace for the company, which two years ago raised a $250 million funding round led by QIA, one of the world’s biggest sovereign wealth funds. Microsoft also made an equity investment in 2023 as part of a strategic partnership.

Its missteps show the risks inherent in the rush to back promising AI startups, as investors seek to replicate the success of companies like OpenAI and Anthropic. After the debut of ChatGPT, London-based Builder.ai rode investor enthusiasm for AI to attract big name investors.

Spokespeople for Microsoft and the QIA didn’t immediately respond to requests for comment.

The World Bank Group’s International Finance Corp., Hollywood mogul Jeffrey Katzenberg’s WndrCo, Lakestar and SoftBank Group Corp.’s DeepCore incubator have also invested in the company.

Builder.ai lowered the sales figures it provided to investors and hired auditors to examine two years of accounts, Bloomberg News reported in March. The company began making the adjustments last summer and eventually dropped its revenue estimates for the second half of 2024 by about 25%.

The revelations about the inflated sales figures came after the company’s founder, Sachin Dev Duggal, stepped down as chief executive officer in February and was replaced by Manpreet Ratia. At the time, Builder.ai also cut its board to five seats from nine, and asked Duggal to relinquish four of the five seats he controlled.

Insolvency cases in the U.K., where Builder.ai is based, and in countries with similar laws are different from bankruptcies in the U.S. U.K. insolvencies are typically overseen by a court-approved administrator who works directly with creditors, bypassing current managers. In the U.S., managers stay in place and any major decisions, like selling assets or borrowing money, must be approved by a federal judge.

The two systems both typically require creditors to vote on any reorganization plan.

Established in 2016, Builder.ai offers a platform for businesses to create custom smartphone apps while requiring little or no coding, allowing a faster turnaround than traditional outsourcing of software projects.