AI unicorn Builder collapsed after lenders discovered “potentially bogus” sales with revenue forecasts revised to a quarter of what they previously were following an internal investigation, the Financial Times reported.
Since launching in 2016, Builder raised more than $500m from a host of big-name investors, including Microsoft and the Qatari Investment Authority.
Earlier this week, the company informed employees it had filed for insolvency, before CEO Manpreet Ratia sent out an investor memo, which was leaked to Sifted, blaming Builder’s creditors for pulling the plug.
Lenders called a default on the $50m loan the startup raised in October after Builder’s restated accounts marked down a prior $220m revenue estimate to around $55m, the FT reported, citing people familiar with the matter. They said previously reported sales for 2023 had also been marked frown from $180m to $45m.
Overstated revenue figures and predictions were reported to the board, when founder Sachin Dev Duggal was still in charge. In March, he was replaced as CEO by Manpreet Ratia, a managing partner at Singapore-based Jungle Ventures, which had previously invested in Builder.
Prior to Duggal’s exit, previously booked sales had been uncollected for long periods, raising concerns about revenue recognition and leading Builder’s new leadership to commission a law firm to carry out an internal investigation, the FT reported.
Leadership and stakeholders were presented with the findings last week, with the law firm reportedly indicating there may have been efforts to inflate revenues at the company.
The investigation focused on “resellers” of Builder’s products, raising concerns over whether some of them were not genuine, two people familiar told the paper.
Builder declined to comment on the internal investigation, adding that the company was "focused on an orderly wind down and preserving value for our employees”.
Sifted approached lenders Viola Credit, Cadma Capital and Atempo Growth for comment.
Pulling the plug
Builder used AI to help clients build customised apps, aiming to make the process as “easy as ordering a pizza”.
One of the most-hyped UK startups, the unicorn last raised in a $250m round in May 2023 amid the AI boom following the release of ChatGPT.
In a leaked investor update note seen by Sifted, Ratia hit out at a group of Builder’s most senior lenders after they “restricted all access to funds” provided under a $50m debt facility the startup drew down on late last year.
He told investors the company’s planned turnaround had been on track, claiming revenue for the quarter had already exceeded expectations.
“The lenders cited technical covenant breaches, swept over $40M in cash from our accounts, and restricted all access to funds, effectively shutting down our ability to operate,” Ratia wrote.
