Almost 75 years after Dorothy set out along the Yellow Brick Road in a technicolor Land of Oz, Sachin Dev Duggal promised a fantasy world of his own.
His quest was to make building an app as easy as ordering a pizza by harnessing the growing capability of artificial intelligence. Initially known as Engineer.ai, his business Builder.ai would go on to raise more than $450m from the world’s biggest investors to build its Natasha neural network.
Like Dorothy, they were duped.
The Emerald City
Just as the Wonderful Wizard of Oz was exposed as an old man behind a curtain, so it transpires that Natasha was, in fact, 700 Indian programmers responding to requests from clients in real-time.
As the likes of the Qatar Investment Authority, Microsoft and SoftBank rushed to invest – handing the London firm a $1.5bn valuation and coveted unicorn status in 2023 – Duggal was billed as the firm’s ‘chief wizard’ as well as its CEO.
His great trick was exposed by Bernhard Engelbrecht, founder of Ebern Finance, in a bombshell tweet that began: “The Natasha neural network turned out to be 700 Indian programmers.”
Engelbrecht went on to claim: “Customer requests were sent to the Indian office, where 700 Indians wrote code instead of AI.
“At the same time, the applications ‘written by AI’ constantly glitched, the code was unreadable, the functions did not work — in general, everything was like real artificial intelligence.
“After the deception was exposed, the startup officially went bankrupt.”
Dave Sharp, a technology due diligence specialist at Endava Private Equity Group, said the collapse “serves as a cautionary tale about the importance of proper due diligence, transparency and ethical practices in the rapidly evolving AI industry”.
He wrote on LinkedIn: “I’ve been told several times by both VC and PE that the thing I do for a living – IT due diligence – isn’t a necessary activity ahead of an investment or acquisition.
“I have had several due diligence projects where something was presented to me as AI, but under scrutiny, it really wasn’t. The due diligence process is there as a safety gate for non-technical investors to get an independent and factually accurate assessment of the technology underpinning the opportunity presented to them. I would have certainly identified what was going on at builder.ai.
“If you think IT due diligence isn’t a necessary safeguard then the next builder.ai could be yours.”
Financial fraud
Builder.ai entered insolvency proceedings late last month two months after Duggal was replaced by Manpreet Ratia, a managing partner at Asia-focused investor Jungle Ventures, as CEO, although he remained in his Oz-styled role.
This despite a report last year in the Financial Times which included testimony from former employees complaining at Duggal’s leadership style, company culture and its ability to deliver on time.
Lawyers told the FT that cases of unhappy customers cited in the report were ‘the result of unforeseen technical challenges or due to a customer pausing their project’.
The FT also reported that in 2023 the Indian Directorate of Enforcement had named Duggal as a suspect in a warrant application related to a money-laundering investigation into Videocon, an Indian firm that went bankrupt in 2018.
It said Duggal did not appear following a 2022 summons to explain alleged ‘unexplained transactions’ between Builder.ai and Videocon. After the directorate changed his designation from ‘witness’ to ‘suspect’, it obtained the warrant from a Delhi court.
Duggal is appealing against the warrant and denies any wrongdoing.
Now there are widely reported claims that Builder.ai and Indian social media giant VerSe Innovation engaged in a practice known as ‘round-tripping’ from 2021–2024: in effect, each company billed one another $180m for non-existent services such as ‘AI licensing’ and ‘market research’.
This financial fraud was disputed by Umang Bedi, VerSe’s co-founder, who told Bloomberg that it was “absolutely baseless and false” that his company would have inflated revenues.
What went wrong?
The Global Board Institute billed the saga as ‘the half-a-billion-dollar illusion: Builder.ai and the cost of governance failure’.
It wrote: “You have to ask: Where was the board?
“At the heart of this scandal is not just financial fraud – it’s a complete failure of corporate governance. No independent directors. No audit committee. No checks or balances on founder overreach.
“Just a charismatic CEO, Sachin Dev Duggal, with unchecked power, inflated revenues, and a board asleep at the wheel.
“The signs were there: no CFO; revenue inflated by 200–300%; whistleblowers ignored; internal audit delays.
“This isn’t just a startup story gone wrong. It’s a wake-up call for every investor, founder, and director. Governance must evolve with innovation – or risk being buried by it.”
Kay Chouhan, a deal architect at ATGlobe Research, offered some key takeaways for both founders and investors on LinkedIn – beginning with ‘verify everything’.
She advised founders and CEOs: “Be honest, always: don’t pretend your tech is something it’s not.
“If you’re using ‘AI’, make sure it’s genuinely doing what you say. Trust is everything, and it’s easily broken.”
As for investors, she said: “Don’t just trust big names: even if other well-known investors are involved – like Microsoft or QIA – do your own thorough checks. A ‘halo effect’ can lead to collective oversight.”
She concluded: “The tech world is growing up. The old idea of ‘fake it till you make it’ is now seen as potentially fraudulent.”