Hundreds of former employees of Microsoft-backed Builder AI in the UK have been left in limbo, as they are still waiting for redundancy payments months after their contracts were terminated.
A British AI company, once valued at £1 billion, has reportedly left hundreds of its former employees without redundancy payments following its collapse.
Unpaid Dues: Hundreds Left in Limbo
Workers assert they have been left in an uncertain state since being dismissed from the once-prominent British AI company in May. Although Builder AI has initiated bankruptcy proceedings in the US, it has yet to appoint administrators in Britain, where its primary operations were located.
This situation means that approximately 200 UK-based staff cannot claim redundancy pay from the Insolvency Service, as it requires a specific case number, typically provided by restructuring advisors during an administration process.
A spokesperson for Builder AI stated the company is 'aware of the frustration' among its staff. They also confirmed that investors and creditors are engaged in advanced discussions regarding a potential pre-pack administration, which would involve the sale of its remaining assets and technology.
Regulatory Gap Leaves Workers Vulnerable
Builder AI has reportedly been preparing Alvarez & Marsal, a restructuring consultancy, to manage its administration process. One former Builder AI employee expressed their frustration, stating they had been kept uninformed throughout the process.
'There's been no communication, no proper closure, and without the right paperwork, a lot of us still can't access the financial help we need,' the employee noted. Former UK employees of Builder AI have not received any payments since April.
The Telegraph has learned that Jungle Ventures, Lakestar, and US fund Insight Partners are among those in advanced negotiations to save parts of the company through a pre-pack deal. Such an arrangement is expected to generate funds to repay creditors, including former employees.
Sachin Dev Duggal, the founder of Builder AI, reportedly attempted to launch a rescue bid with other investors. However, a source close to the negotiations indicated this effort was rejected.
The Company's Rise and Precipitous Fall
Builder AI was a private tech company that achieved the rare status of a British' unicorn,' reaching a valuation of $1.5 billion (£1.1 billion). It had significant backing from Microsoft and Qatar's sovereign wealth fund.
However, the company collapsed in May after lenders withdrew tens of millions of pounds in funding. This occurred amid allegations that its promised sales had fallen significantly short of expectations.
The startup was established in 2016 by 42-year-old Dev Duggal, who developed what he termed 'human-assisted AI.' This involved a chatbot named Natasha, supported by human contractors, to help clients, including the BBC, create applications affordably.
The company's downfall began when it became apparent that its sales forecasts were overly optimistic. When securing funding from lenders, the business had projected sales of $220 million (£164.19 million) for 2024; however, actual sales for that year amounted to approximately $50 million (£37.32 million).
Probes and Allegations of Irregularities
Tech investor Viola Credit and other companies' lenders subsequently withdrew $40 million (£29.85 million) from its accounts, citing breaches of their agreements. This action left the business with almost no funds to pay its staff.
According to The Telegraph, New York prosecutors have issued a subpoena to Builder AI, requesting information about the company's accounting practices prior to its collapse. An investigation into Builder AI's sales shortfall revealed concerns about potentially inflated sales figures and circular transactions in previous years, as reported by The Financial Times.
A spokesperson for Dev Duggal chose not to comment. However, on LinkedIn last month, he stated, 'There was no round-tripping,' addressing the accusations of circular transactions.
A spokesman for Builder AI said: 'We are working closely with the US administrator to initiate liquidation proceedings for the UK entity.'
Dev Duggal's Denial and Company's Path Forward
'The company has actively explored the option of a pre-packaged administration. The company has been actively seeking funding from existing stakeholders. We are now at the conclusion of this process and expect to proceed with formal filings in the UK next couple of weeks.'
The collapse of Builder AI serves as a stark reminder of the complexities and risks inherent in the fast-paced tech industry, particularly for ambitious 'unicorn' startups. As former employees await clarity and their rightful compensation, the unfolding situation highlights critical questions about financial oversight, transparency, and the responsibilities of companies and their backers.
The coming weeks are crucial, as formal proceedings in the UK will hopefully bring some resolution for those impacted by the company's sudden unravelling.
