New Delhi : Once heralded as a beacon of innovation in the artificial intelligence sector, with a valuation soaring past $1.5 billion, the Microsoft-backed startup Builder.ai is now reportedly on the brink of filing for bankruptcy. This precipitous downfall has reverberated throughout the tech industry, casting a stark spotlight on the inherent vulnerabilities, even within the most lauded and seemingly promising AI ventures.
The "Round-Tripping" Scandal( Verse Innovations Vs Builder.Ai
The core of Builder.ai's spectacular collapse appears to stem from allegations of questionable financial practices. According to confidential documents reviewed by Bloomberg and insights from individuals privy to the matter, Builder.ai is accused of engaging in a practice known as "round-tripping" with the Indian social media firm VerSe Innovation, a relationship that purportedly spanned from 2021 to 2024.
The claims suggest that both companies routinely exchanged invoices for ostensibly similar amounts, critically, without a genuine exchange of products or services. This alleged maneuver served to artificially inflate Builder.ai's reported revenue figures, which were subsequently presented to investors. Sources close to the situation contend that this deceptive accounting was a pivotal factor in the startup's ability to maintain its coveted unicorn status – a valuation of over $1 billion.
In response to these grave allegations, Umang Bedi, co-founder of VerSe Innovation, has vehemently denied any wrongdoing. He dismissed the accusations as "absolutely baseless and false," asserting that his company does not engage in practices designed to inflate revenue. Meanwhile, representatives for Builder.ai have refrained from commenting on the matter, and founder Sachin Dev Duggal has remained unresponsive to media inquiries.
VerSe Innovation: Caught in the Crosshairs
VerSe Innovation, known for its short-video app Josh and news aggregator Dailyhunt, finds itself inadvertently implicated in this unfolding financial scandal. Once backed by Chinese tech giant ByteDance, which held a 9.8% stake, VerSe strategically shed its Chinese shareholding in 2022. ByteDance fully exited its investment, selling its stake for $232 million during VerSe's substantial $805 million Series J funding round. Today, VerSe boasts a robust investor base that includes prominent names like CPP Investments, Ontario Teachers', Google, and Microsoft.
Despite successfully cutting ties with its Chinese investors, VerSe is now facing heightened scrutiny over its own governance. Deloitte, in its review for the fiscal year 2024, highlighted internal control weaknesses within the company. The recent "round-tripping" allegations, though vehemently denied by Umang Bedi, further complicate VerSe's financial narrative and underscore the significant challenges high-growth startups face in upholding complete financial transparency.
The weight of these revelations had immediate and devastating consequences for Builder.ai. Investors, rattled by the allegations, reportedly froze $37 million of the company's remaining capital, critically crippling its liquidity. With only a mere $5 million inaccessible due to existing regulatory restrictions, Builder.ai found itself unable to cover essential operational expenses, inexorably pushing it towards insolvency.
In the wake of this crisis, founder Sachin Dev Duggal resigned from his position as CEO in February 2025. Manpreet Ratia has since taken the helm, tasked with the unenviable challenge of attempting to stabilize the beleaguered firm amidst its collapse.
The downfall of Builder.ai marks the most significant failure of an AI startup since the groundbreaking emergence of ChatGPT in 2022. It serves as a stark and sobering reminder of the immense pressures faced by young technology firms to not only achieve rapid growth but also to consistently sustain investor confidence.
Furthermore, this incident raises broader and more pressing concerns about transparency and financial integrity within the booming artificial intelligence sector. As unprecedented levels of funding continue to pour into AI ventures, the Builder.ai saga signals a critical need for tighter oversight and enhanced due diligence in evaluating the long-term stability and ethical practices of these high-growth companies. The market will undoubtedly be scrutinizing future investments with a more critical eye.
