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Microsoft-backed Builder.ai collapsed after an internal investigation found evidence of potentially bogus sales and the company revised down revenues to just a quarter of prior estimates.
Builder.ai, one of the UK’s best-funded technology start-ups that raised more than $500mn from prominent backers such as Qatar’s sovereign-wealth fund, informed employees earlier this week that it would commence insolvency proceedings after its lenders called a default.
Lenders stepped in after Builder.ai submitted provisional accounts to its auditor showing large reductions to prior revenue estimates, according to people familiar with the matter.
These figures showed that a prior $220mn estimate for 2024 revenues had been revised to around $55mn, while a previously reported 2023 total sales figure of $180mn would be restated to roughly $45mn, the people added.
These prior revenue figures were previously submitted to the board under the leadership of Sachin Dev Duggal, the technology start-up’s founder. He stepped down as chief executive earlier this year along with the company’s chief revenue officer, Varghese Cherian. However, Duggal retained a board seat and the honorific title of “chief wizard”.
One of the problems that preceded Duggal’s exit was that previously booked sales remained uncollected for very long periods, according to people familiar with the matter.
These long-standing unpaid bills raised concerns about revenue recognition at the company and led Builder.ai’s board and new leadership to commission a law firm to carry out an internal investigation.
Findings from this investigation were reported to the company’s top leadership and other stakeholders last week, which raised serious questions around the validity of previously recorded revenues, according to two people with knowledge of the report. The law firm indicated that there may have been a concerted effort to inflate revenues at Builder.ai.
The investigation focused on so-called “resellers” — middlemen whom it was claimed sold on Builder.ai’s products to customers — particularly some based in the Middle East. The probe’s findings raised concerns over whether some of these resellers were not genuine, according to the two people familiar with the report.
Builder.ai had claimed it could use artificial intelligence to make the process of building an app or website “as easy as ordering pizza”.
That pitch had drawn in blue-chip backers such as Microsoft, which has staked its claim to being at the forefront of the AI boom through its funding of ChatGPT maker OpenAI.
The Financial Times has previously reported that the company in October borrowed $50mn from a syndicate of tech-focused lending firms, which triggered Builder.ai’s insolvency by seizing its cash earlier this month.
This syndicate of lenders was led by Viola Credit, Atempo Growth and Cadma Capital Partners, according to several people familiar with the matter, the latter of which is backed by private capital giant Apollo Global Management.
Builder.ai declined to comment, adding that it was “focused on the orderly wind down and preserving value for employees”. Cadma Capital declined to comment. Duggal, Cherian and the other lenders did not respond to requests for comment.
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