The global start-up sector is once again under a cloud following allegations of financial wrongdoing against UK-based Builder.ai, a company that was once celebrated for its so-called AI-driven app development services. At the heart of this controversy is not only a web of suspected financial misreporting but also serious doubts about the company’s technology claims, corporate integrity, and long-term viability. Builder.ai, which had raised over $450 million in funding and was widely viewed as a leader in the no-code AI space, is now accused of engaging in fake financial transactions and deceptive business practices. These allegations have raised alarms among investors, regulators, and the broader tech community.
The scandal erupted after a detailed investigation published by The Economic Times, citing Bloomberg and other sources, revealed that Builder.ai was involved in repeated billing exchanges with Indian tech unicorn VerSe Innovation, the parent company of popular platforms such as Dailyhunt and Josh. The documents reviewed suggested that from 2021 to 2024, both companies engaged in transactions where similar amounts were billed back and forth, with no real exchange of services. This practice, commonly referred to as “round-tripping,” involves moving funds between companies to create an illusion of growth or activity that does not actually exist. It can mislead investors by artificially inflating revenue figures on paper while not reflecting any real business development.
Round-tripping is not a new tactic, but its use by a high-profile startup like Builder.ai has sparked particular concern. It involves one company sending money to another under the guise of a business transaction, only for the receiving company to return an equal or near-equal amount through another deal. The cycle continues, showing both companies as having larger operations than they actually do. Experts in financial compliance argue that if these allegations are proven true, they could amount to deliberate fraud. Such actions are designed to deceive investors and possibly regulators, especially during funding rounds or financial evaluations where growth and revenue metrics heavily influence investment decisions.
Builder.ai’s partner in this alleged scheme, VerSe Innovation, has denied the allegations. Umang Bedi, co-founder of VerSe, told The Economic Times that the accusations are entirely baseless and possibly based on a misunderstanding of the nature of their transactions. However, no detailed clarification was offered by the company, and the questions raised by Deloitte, VerSe’s own auditor, further complicate the matter. According to the same investigative report, Deloitte had flagged serious issues in VerSe’s internal controls during its audit for the financial year 2024. The audit pointed out material weaknesses that could lead to incorrect financial reporting, especially regarding trade payables and other critical accounts. One supplier claim worth ₹35 crore reportedly lacked proper justification and was not even listed in VerSe’s financial books.
While VerSe has issued denials, Builder.ai has maintained silence. There has been no official comment from the company’s leadership or public relations teams, which has only added to the growing suspicion and scrutiny. The lack of transparency is troubling for stakeholders who are already concerned about the rising number of governance issues across the start-up industry, both in India and abroad.
The scandal has come at a time when India’s startup sector is already facing serious challenges. From funding shortages to mass layoffs and increased regulatory oversight, many companies are struggling to maintain trust and transparency. The revelation that two well-known companies might have engaged in round-tripping has deepened concerns about the financial practices of fast-growing tech firms. For many investors, especially institutional ones, these developments serve as a wake-up call. A venture capital analyst interviewed on the condition of anonymity noted that if companies with previous rounds of successful funding and high valuations are resorting to such tactics, it calls into question the effectiveness of due diligence processes in earlier funding rounds.
Builder.ai’s problems go beyond financial transactions. The company is also being criticized for misleading claims regarding its core technology. Marketed as a no-code, AI-driven platform, Builder.ai promoted its AI assistant “Natasha” as the tool that helped users build apps with ease. However, reports have surfaced suggesting that Natasha was never powered by artificial intelligence. Instead, it was a front-end for a team of around 700 Indian software engineers who manually performed the tasks. According to Bernhard Engelbrecht, the founder of Ebern Finance, the apps delivered were often buggy and poorly written, contradicting the company’s image as a leader in cutting-edge AI automation.
The suggestion that Builder.ai used traditional coding teams to carry out tasks claimed to be performed by AI is a serious charge. It highlights a growing issue in the tech world, where companies overstate their capabilities to attract funding and media attention. In the case of Builder.ai, the deception was so well orchestrated that the company attracted investment from major players, including Microsoft. At one point, Builder.ai was valued at nearly $1 billion and considered one of the most promising AI startups globally.
Despite its previous success, the company has now begun bankruptcy proceedings in several jurisdictions, including India, the United States, Singapore, the United Arab Emirates, and the United Kingdom. According to Builder.ai’s chief executive Manpreet Ratia, the company is undergoing insolvency under each region’s respective legal frameworks. A major turning point in the company’s collapse was when Viola Credit, one of its major creditors, withdrew $37 million from Builder.ai’s accounts. Only $5 million remains, and due to regulatory restrictions on international money transfers, the company is unable to pay most of its overseas staff. As a result, mass layoffs have already taken place, and the company is now almost entirely non-operational.
Builder.ai was originally founded in 2012 by Sachin Dev Duggal with the idea of simplifying software development through automation. The platform claimed to allow clients to build apps just like assembling Lego blocks. Over the years, the company gained attention and funding from several reputed institutions and venture capital firms. However, with the recent revelations, the company’s public image has shifted dramatically from innovation leader to a case study in failed corporate governance.
The implications of the Builder.ai and VerSe Innovation case stretch beyond the two companies. It serves as a cautionary tale for the startup community, investors, regulators, and even customers. The use of round-tripping, misrepresentation of services, and lack of financial control point to broader issues that many high-growth start-ups could be hiding under the surface. It brings into question the current funding culture, where rapid growth and high valuations are often given more importance than transparency and sustainability.
As of now, there is no official confirmation from Indian authorities like the Ministry of Corporate Affairs or the Enforcement Directorate on whether a formal probe has been launched against VerSe Innovation. However, given the cross-border nature of the transactions and Builder.ai’s UK headquarters, regulatory bodies in both countries, including the UK’s Financial Conduct Authority, may soon take interest. If found guilty of fraudulent financial practices, both companies could face heavy penalties, legal action, and possibly even criminal charges against top executives.
