Microsoft-Backed AI Startup Hires Auditors Amid Inflated Sales Claims

Ever been to a barbecue where the grill's blazing, the hype is real, and then someone lifts the lid to find the food half-cooked? That’s the vibe right now at Builder.ai. With Microsoft, SoftBank, and the Qatar Investment Authority in its corner and over $450 million in its back pocket, this London-based AI startup seemed unstoppable. But as it turns out, all that sizzle came with some serious smoke. In a twist that’s making investors spit out their cold brew, Builder.ai is now at the center of a revenue-inflation scandal, with sales figures being walked back, an audit in full swing, and a whole lot of C-suite reshuffling. So, what went wrong, and what can financial professionals take away from this AI-fueled mess?

From Tech Titan to Transparency Turmoil

Builder.ai’s whole pitch was flashy: use AI to let businesses build custom apps without breaking a sweat (or knowing a line of code). Founded in 2016, it wasn’t long before deep-pocketed VCs started throwing stacks at it. The company raised over $450 million, with Microsoft and QIA leading a $250 million round in 2023. But as new CEO Manpreet Ratia (ex-Amazon and Citigroup) stepped in, it didn’t take long for the curtain to fall. By early 2024, the company admitted to slashing its projected revenue for H2 2024 by 25%, thanks to sales channels that straight-up flopped, notably resellers in the Middle East who didn’t deliver. Then came the bombshell: 2023 sales had been restated downward to $140 million, and that’s when things got spicy.

AI Magic or Just Cooking Books?

According to reports from Bloomberg and FT, several former employees alleged that the AI startup had inflated sales by over 20%. How? By counting revenue from deals that either weren’t finalized or couldn’t be collected, especially from third-party resellers who didn’t meet their minimum commitments. Ratia didn’t deny the problem. Instead, he got real: “Do we have problems? Absolutely. Any organization who comes and says everything is hunky-dory is probably lying,” he told FT. Builder.ai also tried to brush off discrepancies by attributing them to customer discounts or channel misunderstandings. But investors weren't buying it, and the company finally called in the pros.

Big Four to the Rescue

With the credibility of its financials in question, The AI startup hired two of the Big Four auditing firms (BDO was confirmed later) to dig into 2023 and 2024 accounts. The goal? Determine whether the inflated numbers were sloppy accounting, overly optimistic forecasting, or something more serious. This is also Builder.ai’s first group-level audit — and that raises a few brows on its own. Why wasn’t this done before, especially with hundreds of millions in funding? The company's prior auditor had close ties to founder Sachin Dev Duggal, who quietly stepped down in February but still clings to the oddball title of "Chief Wizard."

The audit, expected by summer 2025, will examine:

• Legitimacy of past recorded revenues.
• Validity of reseller contracts and collection rates.
• Weaknesses in internal controls.
• Whether any fraud or willful misrepresentation occurred.

What This Means for Financial Reporting

This ain't just a Builder.ai problem, it's a red flag for the entire AI startup ecosystem.

Inflated sales don’t just distort a balance sheet, they destroy trust. Misstated revenues can lead to poor valuation metrics, wasted investments, and strategic decisions built on fantasy. For Builder.ai, the implications are major:

• Investor confidence takes a hit.
• Future funding rounds may dry up or get much pricier.
• Regulators and media are watching, closely.

The company has switched to monthly financial reporting (instead of annual) and implemented tighter internal governance. But the damage may already be done in the eyes of some backers.

Lessons for Startups & Investors

Builder.ai’s saga is like spring cleaning with a flamethrower, dramatic, overdue, and painful. But it also holds key lessons:

• Don’t Play Fast and Loose with Revenue Recognition.  Especially in SaaS or AI models where revenue can be complex or subscription-based, clarity is king.
• Vet Those Channel Partners.  Unreliable third-party sales deals may look good on paper but turn into ghost revenue.
• Get Independent Auditors Early.  Don't wait until your financials are on fire to bring in BDO.
• Ethical Leadership is the Real Unicorn.  Flashy founders are great, but not if they control the board, the books, and the buzz.

Transparency is the Real MVP

As Ratia put it: “Let’s go back and take a hard look at what’s working… and the stuff, which is not working, let’s get rid of it.” Builder.ai isn’t the first startup to get caught inflating numbers, and it won’t be the last. But in a sector, that’s swimming in AI hype and VC cash, it’s a much-needed gut check. For financial professionals, auditors, and investors, the message is loud and clear: trust but verify. And for startups pushing the limits of tech, remember, no amount of AI can hide shady accounting forever. Get the trends, not the noise. Subscribe and outsmart the market, one insight at a time.