Builder.ai, one of the UK’s best-funded technology start-ups, collapsed after an internal investigation found evidence of potentially fraudulent sales and the company revised 2024 sales to only a quarter of previous estimates, the Financial Times reported.

The company told employees last week that it would begin insolvency proceedings after a group of creditors seized most of its cash.

The group of lenders, led by Viola Credit, had originally been told that Builder.ai projected sales of $220 million (£162.6m) for 2024, but the actual figure was revised to about $55m following an internal audit, the FT report said.

Inflated revenues

Previously reported 2023 sales of $180m were restated to roughly $45m, the paper said, citing unnamed people familiar with the matter.

The lenders declared a default and seized the cash in the company’s bank accounts, about $37m, after the revised figures were submitted by an independent auditor, Bloomberg reported.

Builder.ai had raised more than $500m from backers including Microsoft, Qatar’s sovereign wealth fund, and others before seeking an emergency loan from the creditor group last year.

The company was valued at about $1.5bn in its most recent fundraising round, making it the biggest collapse of an AI start-up since OpenAI’s ChatGPT began the AI gold rush in November 2022.

Concerns were raised about Builder.ai’s real sales figures after then-chief executive Sachin Dev Duggal last December asked the board for more cash after the loan, Bloomberg’s report said.

The board then called for another round of due diligence that revised revenue figures down to about $100m.

By February the board had pushed Duggal out and appointed as chief executive Manpreet Ratia, an executive from investor Jungle Ventures and assigned an independent auditor to go through the books.

Builder.ai allowed people to easily create smartphone apps.

Reseller probe

The company said in an email to staff last Tuesday that it was “unable to recover from historic challenges and past decisions that placed significant strain on its financial position” and would be going into administration, Bloomberg said.

A law firm appointed by the board to carry out an internal investigation found that there may have been a concerted effort to inflate revenue figures at Builder.ai, the FT reported.

The investigation focused on resellers, particularly in the Middle East, raising concerns that some of them may not have been genuine.

Builder.ai said in a statement that it was “focused on the orderly wind down and preserving value for employees”.

The start-up’s collapse shows how large investors such as Microsoft are rushing into deals through a “fear of missing out”, or FOMO, without completing due diligence, said Carrie Osman, chief executive of private equity advisor Cruxy.

“This isn’t the first case of disastrous FOMO we’ve seen over the years,” she said. “And as AI-washing continues, this won’t be the last case.”