When Hype Outpaces Scrutiny: The Builder.ai Collapse and the Cost of Skipped Due Diligence
AI remains the hottest sector in venture capital. Deal activity may be slowing, but funding levels are surging and AI startups raised $19.6 billion in Q1 and $25.7 billion in Q2 2025 (excluding mega-rounds), reflecting extraordinary investor confidence. But when valuations climb faster than scrutiny, investors can find themselves caught in a familiar trap: herd optimism replacing hard diligence. Few cases illustrate this better than Builder.ai.
When Scrutiny Slips, Risk Rushes In Once valued at $1.5 billion and backed by marquee investors including Microsoft and Qatar Investment Authority, Builder.ai promised to make software creation “as easy as ordering pizza.” Its flagship product, AI-assistant Natasha, was touted as a breakthrough AI-driven app development.
Behind the scenes, the reality was far more manual. In 2019, The Wall Street Journal revealed that hundreds of human engineers were quietly doing the work. By June 2025, Financial Times [FT] and Bloomberg reported the collapse: inflated sales, round-tripped revenue, and restated financials. Thousands of employees were left without jobs. Investors were left with nothing. As FT put it, it was a “collapse born of misplaced confidence.”
Fast Growth Doesn’t Replace Good Governance The warning signs were always there. Builder.ai’s founder, Sachin Dev Duggal, had a checkered history that deserved more attention. His previous venture, Nivio, a cloud desktop startup founded in 2004, raised roughly $21 million before dissolving in 2015 amid allegations of unauthorized fund transfers, disputed donations, and ties to Videocon. While some claims were dismissed in Switzerland, the governance and financial irregularities were serious enough to warrant careful review.
Yet those signals were overlooked. Builder.ai went on to raise successive rounds. $29.5 million (2018), $65 million (2021), $100 million (2022), and over $250 million (2023). All without the kind of probing diligence that could have changed the outcome.
How Hype Cycles Break Traditional Diligence In July 2025, FT published a letter that captured the industry dynamic bluntly, “The sorry saga of this Microsoft-backed start-up shows how investors are failing to do their due diligence when backing artificial intelligence and tech.” This pattern repeats across hype cycles. Traditional diligence falters for two reasons:
Assumed Coverage | Speed Pressure |
|---|---|
Investors believe someone else has already done the work, creating a herd effect that compounds risk. | The urgency to “get in” on the next big thing often pushes deep background checks to the back burner. |
The result: companies built on shaky operational or ethical foundations can scale unchecked until it’s too late.
Modern Diligence Moves at the Speed of Deals Rigorous diligence doesn’t have to slow investors down. Intelligo can uncover founder histories, financial inconsistencies, legal exposure, and operational anomalies in days, not months. Built for this moment, Intelligo’s comprehensive due diligence platform automates the research process, combining proprietary AI with human analysis to deliver fast, accurate intelligence at lower cost and turnaround time. It surfaces the kinds of warning signs that could have flagged Builder.ai’s weaknesses years earlier, enabling investors to move quickly and confidently, without relying on herd assumptions.
Five Lessons for Investors
Hype isn’t evidence. Verify technological claims independently.
Founder history matters. Leadership patterns repeat.
Funding rounds ≠ validation. Each round is another change to check.
Speed and rigor can coexist. The right tools make it possible.
Diligence isn’t optional. It’s a competitive advantage.
Want to See the Full Risk Picture? The Intelligo Risk Barometer 2025 Report aggregates thousands of background checks and hundreds of thousands of data points from 2024 to identify the top pre-investment risks flagged over the past year. Reviewed by Intelligo’s AI background technology and expert analysis, the finders offer a comprehensive view of the patterns shaping the next investment cycle, and a roadmap for more informed diligence in 2025 and beyond.
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Sources: Bloomberg. Startup Builder.ai Goes From $1.5 Billion Unicorn to Bankruptcy. Link. Financial Times. Builder.ai: The wild ride of a Microsoft-backed tech unicorn. Link. Financial Times. Inside the collapse of Microsoft-backed UK tech unicorn Builder.ai. Link. Financial Times. Letter: The Due Diligence Deficit. Link. The Neptune Herald. AI tech unicorn at the cutting edge. Link. The New York Times. How Builder.ai Collapsed Amid Silicon Valley’s Biggest Boom. Link. The Wall Street Journal. AI Startup Boom Raises Questions of Exaggerated Tech Savvy. Link.
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