UK Startup That Faked AI with Indian Programmers Goes Bankrupt: Microsoft Among Investors

It’s a rainy afternoon in London, and we at The Mors (https://themors.com/) have been digging into a story that’s been making waves in the tech world. A British startup, Builder.ai, just declared bankruptcy, leaving investors, including Microsoft, reeling. What makes this collapse even more shocking is the revelation that its so-called AI—touted as a game-changer in app development—was actually powered by hundreds of Indian programmers pretending to be a neural network. We’ve unpacked the details, explored the fallout, and drawn lessons for anyone interested in tech, startups, or investments.

What Happened to Builder.ai?

Builder.ai, originally launched as Engineer.ai in 2016, promised to revolutionize app development. The pitch was simple: anyone could create a mobile app without coding skills, thanks to an AI named Natasha that supposedly generated code automatically. This caught the eye of big-name investors like Microsoft, Qatar Investment Authority, and SoftBank, who poured over $450 million into the company. But in May 2025, the house of cards came crashing down.

The collapse started when creditor Viola Credit froze $37 million of the company’s funds, triggering a chain reaction. Builder.ai filed for bankruptcy in five countries: the UK, USA, UAE, Singapore, and India. The real bombshell came when it was revealed that there was no AI. Instead, the “automated” code was written by teams of programmers in India. The Wall Street Journal had exposed this back in 2019, but the startup kept raising funds until its debts—$85 million to Amazon and $30 million to Microsoft—became unmanageable. Founder Sachin Dev Duggal stepped down in February 2025, handing the reins to Manpreet Ratia, but even cutting 270 jobs couldn’t save the sinking ship.

How Did the Scheme Work?

Builder.ai marketed itself as a platform where users could pick an app template, specify features, and let Natasha do the rest. In reality, user requests were sent to offices in India, where programmers manually wrote the code. The apps often had bugs, which the company spun as proof of AI at work—after all, neural networks aren’t perfect, right? Duggal claimed Natasha could generate 82% of an app’s code in an hour, but former employees later admitted the AI was still in development. It was all smoke and mirrors.

This deception kept the company afloat for eight years. The hype around AI, fueled by successes like ChatGPT, blinded investors to the red flags. Microsoft saw Builder.ai as a potential partner for its cloud services, but when the money ran out and debts piled up, the truth came out. By the time of the collapse, the startup had only $5 million left on its Indian accounts—frozen due to legal battles.

Why Does This Matter to Investors and Businesses?

Here at The Mors, we see this as a wake-up call for anyone in the tech space. First, it shows how easy it is to fall for flashy promises. AI is a buzzword right now, and companies often use it as a marketing trick, even if there’s no real tech behind it. Second, you’ve got to dig into who’s running the show. Builder.ai had offices in five countries, but the heavy lifting happened in India, where labor costs are low. That’s not a bad thing on its own—Indian programmers are skilled—but it was a front for a bigger lie.

For businesses, this is a lesson in outsourcing risks. If you’re handing off development to third parties, you need to know exactly how they operate. I once hired an overseas developer for a project and ended up with code I had to rewrite from scratch. Transparency is everything. And if you’re looking to build an app, don’t blindly trust platforms promising automation—test their capabilities first.

How Did This Affect Microsoft?

Microsoft invested heavily in Builder.ai, reportedly in the tens of millions, though exact figures aren’t public. It’s not the first time a tech giant has taken a hit from a bad bet—think of SoftBank’s near-disaster with WeWork in 2020. For Microsoft, the financial loss won’t break the bank, but it’s a bruise on their reputation. Investors will now think twice before backing AI-focused projects Microsoft endorses.

On the flip side, this could push Microsoft to tighten their vetting process. They’re already investing in AI tools like Copilot, and this fiasco might lead to better oversight of their partnerships. For users, that could mean more reliable products down the line as Microsoft learns from its mistakes.

What Can Investors and Entrepreneurs Do?

If you’re an investor or starting a business, this story offers some hard-earned lessons. First, research the team. Builder.ai had big dreams but little to show for it. Second, verify the tech. If a company claims to have AI, ask for a demo or code samples. Third, keep an eye on finances. Builder.ai’s debts were piling up, but investors ignored the warning signs until it was too late.

Entrepreneurs, be honest. If you’re building a product, don’t pretend to be something you’re not. A friend of mine launched a small automation tool and was upfront that humans handled part of the process. His clients respected that, and his business is thriving. Honesty pays off more than deception.

The Origins of Builder.ai: A Closer Look

Builder.ai started as Engineer.ai in 2016, founded by Sachin Dev Duggal and Manpreet Ratia, both from India. The main office was in London, but most operations were based in Delhi. The company gained traction by promising to simplify app creation, earning a “unicorn” status with a $1.5 billion valuation by 2018. At its peak in 2024, Builder.ai reported annual revenue of $55 million—though they claimed $220 million, a number later proven inflated.

The startup attracted heavyweights like Microsoft and Qatar Investment Authority, with satellite offices in the USA, UAE, Singapore, and India. But these offices were mostly for show; the real work happened in India, where low labor costs kept expenses down. Security was a weak point—manual coding led to inconsistent standards, and some clients reported data vulnerabilities in their apps. This lack of oversight was a ticking time bomb.

Security Lessons from the Collapse

The Builder.ai saga raises concerns about tech security. When humans, not AI, are behind the scenes, the risk of data leaks grows. If the company had been upfront, they might have implemented stricter safeguards. Now, clients are left with broken apps and worries about their data’s safety.

For anyone using similar platforms, here’s a tip: check reviews and reputation. A few years back, I picked a website-building service after seeing their portfolio—it saved me a headache. Transparency is your best defense. At The Mors, we’re big on helping readers navigate these risks with practical advice.

What’s Next for AI After This Scandal?

This scandal doesn’t mean AI is a sham. Companies like xAI and Google are doing real, groundbreaking work. But Builder.ai’s collapse reminds us that not everything labeled “AI” is legit. Investors will likely demand more proof moving forward, and startups will need to prioritize ethics. For users, it’s a chance to get savvier about tech—don’t fall for hype without evidence.

We think the market will clean itself up in a few years. Honest AI companies will rise, while fakes like Builder.ai fade away. It’s survival of the fittest in the tech world.

How to Protect Yourself from Similar Situations?

Whether you’re investing or launching a project, start small. Check if the company has real products, not just slick presentations. Talk to their clients—I did this before investing in a startup once, and it saved me from a bad deal. Also, stay informed. Platforms like The Mors keep you updated on tech trends and pitfalls.

What’s Next for Builder.ai and Its Clients?

Builder.ai is left with $5 million on its Indian accounts, but legal restrictions block access. Most employees are gone, and clients are stuck with unusable apps. Some are scrambling for new developers; others are demanding refunds, but the odds of recovery are slim.

For the tech industry, this is a call for tighter regulation. We might see new standards to verify AI claims in the future. For now, Microsoft and other investors will likely double down on due diligence before funding similar projects.

Why Follow Stories Like This?

Tech shapes our lives, but it comes with risks. Builder.ai’s downfall isn’t just a scandal—it’s a lesson in staying sharp. Whether you’re a business owner, investor, or tech enthusiast, these stories help you spot red flags. At The Mors, we’re committed to breaking down these events with insights you can use.

We don’t just report news—we analyze it. From tech breakthroughs to investment tips, our articles are packed with actionable ideas. Want to learn more about startups, AI, or cybersecurity? Keep reading our blog.

How The Mors Helps You Navigate Tech Trends

Here at https://themors.com/, we’re all about making tech accessible. We take complex topics and explain them in plain language, backed by research and real-world experience. You’ll find guides on everything from spotting fake AI to securing your data. Our goal is to empower you with the knowledge to make smart choices.

We’ve covered topics like how to vet tech companies and choose reliable software in past posts. Check them out—they’ll help you avoid pitfalls like the one Builder.ai fell into. Stay curious, stay informed, and let us guide you through the tech landscape.