The Fall of Builder.ai: A Billion-Dollar Warning Sign
The Rise and Fall of Builder.ai - What We Can Learn from a Billion-Dollar Breakdown
Builder.ai had all the makings of a success story: a bold founder, a product built on the promise of AI, backing from Microsoft, and a valuation north of a billion dollars. By early 2025, that story had changed. The company, once seen as a symbol of the no-code movement, was facing insolvency.
I followed this case not to point fingers, but because I believe there's real value in understanding where things went wrong. If you're building, scaling, or investing in startups today, stories like these offer more than headlines. They offer context for better decisions. Here's my take on what led to Builder.ai’s downfall, and how we can avoid making the same mistakes.
The founder steps down - but doesn’t really leave
In February 2025, Builder.ai’s founder and CEO, Sachin Dev Duggal, resigned amid allegations of financial misconduct (t3n 2025). On paper, it was a leadership restructure. In practice, he stayed involved (under the title of “Chief Wizard”).
It might sound quirky and harmless, but from a governance standpoint, I see this as a major red flag. When founders step down but maintain informal control, it blurs lines of accountability. Teams lose clarity. Boards lose influence. And trust starts to erode both internally and externally.
My perspective: Startups need clear leadership structures and real succession planning. That’s not just corporate speak, it’s indeed rather very essential when you're handling investor capital and scaling a complex operation (Einarsen et al. 2007).
AI as a narrative, not a product
Builder.ai marketed itself as an AI-native app development platform. But much of the actual work, especially in early iterations, was done manually by outsourced teams (Wall Street Journal 2019). AI wasn’t the engine, it was the nicely designed packaging that makes you invest or buy. Overpromising tech capabilities is not uncommon in startups. I do not like the approach of "fake it till you make it" as it does not create the required transparency to build trust early on with investors, customers and other startup stakeholders. In addition when the gap between story and substance gets too wide, it creates risk as customers feel misled and investors lose confidence. Moreover competitors – who may be more transparent – suddenly look more credible which can become a clear competitive disadvantage and destroy the value of your startup.
What I’ve seen work: Underpromise. Then overachieve on delivery. Especially in AI, credibility compounds over time. It’s okay to sell a vision, but be honest about what’s real today versus what’s still in progress. Fake it till you make it is not the path to follow anymore, and maybe it never was...
Financial foundations weren’t solid
After Duggal stepped down, the new leadership revealed that Builder.ai had overstated its 2023 revenue by more than 20% creating a wrong picture of the companies financial position (Bloomberg 2025). And the consequences were very negative of course: layoffs, a strategic pivot, and growing uncertainty about the company’s future. From my experience working with VC-backed startups, this isn’t just a technical issue. It’s very much a cultural one. When financial discipline is missing, even well-funded startups start drifting. They lose internal alignment. They make poor decisions. And they burn trust faster than capital. Its a negative dynamic that is really hard to stop and to turn around. Hence getting into such a situation must be avoided by taking proactive action.
Be proactive. Not reactive.
What I advise: Build financial maturity early. Clean reporting, strong internal controls, and a finance lead who can do more than track burn rate. These are essential, even in the early days (Kaplan & Norton 1996). If you’re not there yet, bring in a fractional CFO or external advisor who can support you in building a strong finance organization in your startup. Especially when you are located in Berlin it will be easy for you to find someone suitable also for your startup.
Big investors ≠ built-in success
Builder.ai had the backing of Microsoft, SoftBank, and several other heavyweight investors. So how did things still go so wrong? To me, this is the classic mistake of equating investor prestige with startup resilience. Yes, big names bring credibility. But they don’t replace operational rigor. Even the best investors can get swept up in founder charisma or a compelling pitch deck. And this example will also make a good story about investors Fear Of Missing Out or in short FOMO.
Lesson learned: Due diligence is not a one-time event. It’s an ongoing mindset. Whether you’re investing or operating, keep asking tough questions. Track internal signals: team morale, product quality, customer churn, and take them seriously (Gompers & Lerner 2001). And start digging into anomalies you might observe early on. You need to have clarity on all important startup KPIs metrics and a very good understanding about what is driving them. Do not shy away from asking also unpleasant questions on your path to clarity. Once you investigated the root cause of anomalies or any other problem, start to develop and implement measures to counter the negative effects in order to keep your startup healthy and on track to success. This guidance is equally true for startup founders, its employees (especially those working in finance), and investors.
So, how do we avoid becoming the next Builder.ai?
I have never seen startups fail because they lack ambition. Usually they fail because they can’t translate ambition into sustainable and succesful execution. So how can the translation look like in practice? From my perspective, here are five principles that make a real difference:
- Be radically transparent: Internally and externally. With your team, with your board, with your users. It’s the fastest way to build trust – and the best insurance when things get bumpy.
- Design for integrity: Governance, ethics, and role clarity aren’t overhead. They’re part of the product, because they shape how you make decisions.
- Stay product-obsessed: Great storytelling might get you to Series A. Great products and happy customers get you to profitability.
- Build cultures, not cults: Leadership is about clarity and consistency, not mystique. Make sure you are building a healthy and stable culture in your startup. This will be very crucial especially as you scale.
- Keep your financials tight: Liquidity gives you runway. Financial transparency and discipline ensures you are taking the right financial decisions for your startup that will create value.
In closing: A billion-dollar reminder
Overall Builder.ai didn’t fail because of one bad decision or a lack of resources. In my view it rather failed because of weak structures, blurred roles, and a growing disconnect between narrative and reality (= poor startup management). I don’t think this story is about blame. I see it as a case study, one that reminds us that the real work in startups isn’t raising money, but turning capital, ideas, and people into lasting companies.
Reference(s)
- t3n (2025): Dieses KI-Startup war einst 1 Milliarde wert – jetzt droht die Pleite. https://t3n.de/news/ki-startup-milliarde-microsoft-pleite-1688854/ (accessed on June 5, 2025)
- Wall Street Journal (2019): AI Startup Boom Raises Questions of Exaggerated Tech Savvy. https://www.wsj.com/articles/ai-startup-boom-raises-questions-of-exaggerated-tech-savvy-11565775004 (accessed on June 5, 2025)
- Bloomberg (2025): US Prosecutors Sought Builder.ai Data After Sales Overstated. https://www.bloomberg.com/news/articles/2025-05-26/us-prosecutors-sought-builder-ai-data-after-sales-overstated (accessed on June 5, 2025)
- Einarsen, S., Aasland, M. S., & Skogstad, A. (2007): Destructive leadership behaviour: A definition and conceptual model. The Leadership Quarterly, 18(3), 207–216.
- Kaplan, R. S., & Norton, D. P. (1996): The Balanced Scorecard: Translating Strategy into Action. Harvard Business Press.
- Gompers, P., & Lerner, J. (2001): The Venture Capital Revolution. Journal of Economic Perspectives, 15(2), 145–168.
