Microsoft-Backed Builder.ai Faces Bankruptcy After Funds Seized

The CEO of Builder.ai, a British artificial intelligence startup supported by Microsoft Corp. and the Qatar Investment Authority, announced that a major creditor had taken the majority of the company's funds, prompting the company to file for bankruptcy.

Manpreet Ratia, the CEO of Builder.ai, stated in an interview on 20 May that Viola Credit, which gave the software company $50 million in debt last year, had taken $37 million from the company's accounts, leaving it with $5 million.

Ratia did not provide a clear explanation for the seizure. According to Ratia, the business, which has operations in the US, UK, India, the UAE, and Singapore, will declare bankruptcy when the time comes, in accordance with the procedures in each of those countries.

Ratia stated that he had to make the tough choice to fire the majority of Builder.ai's staff due to the startup's financial difficulties. According to him, the company's remaining $5 million is in Indian banks and was unable to be utilised for employee payments because of limitations on the flow of funds beyond the nation.

Downfall of Builder.ai

One of the largest sovereign wealth funds in the world, QIA, spearheaded a $250 million fundraising round for the company two years prior, and the current proceedings represent a remarkable fall from grace. In 2023, Microsoft also invested equity as a component of a strategic alliance.

Builder.ai disclosed to a news agency less than two months ago that it had engaged auditors to review two years' worth of accounting and that it had been compelled to reduce sales predictions given to investors. This was in response to enquiries from the agency on the worries of former workers regarding the company's exaggerated sales figures.

The mistakes made by Builder.ai highlight the dangers of investing in promising AI firms too quickly, as investors aim to duplicate the achievements of industry titans like OpenAI and Anthropic.

Following ChatGPT's launch, London-based Builder.ai capitalised on investor excitement in AI to draw in well-known investors. Ratia took over as CEO in February after Sachin Dev Duggal, the company's founder, resigned.

At the time, Builder.ai also demanded Duggal to give up four of the five seats he controlled and reduced the size of its board from nine to five.

According to a statement from Builder.ai, the company has not been able to bounce back from prior decisions and historic setbacks that have severely strained its financial position. It further stated that the corporation will designate an administrator to oversee its operations.

More Trouble for Builder.ai

The business has also received investments from the World Bank Group's International Finance Corp., Hollywood tycoon Jeffrey Katzenberg's WndrCo, Lakestar, and SoftBank Group Corp.'s DeepCore incubator.

Bankruptcies in the US are not the same as insolvency cases in the UK, where Builder.ai is headquartered, and other nations with comparable legal systems. A court-approved administrator oversees insolvencies in the UK, working directly with creditors and avoiding the incumbent managers.

In the US, managers remain in their positions, and a federal judge must authorise any significant moves, such as borrowing funds or selling assets.