Sachin Dev Duggal, the founder and self-proclaimed “chief wizard” of Builder.ai, raised more than half a billion dollars from some of the world’s top technology investors with a simple pitch: it could use artificial intelligence to make building apps “as easy as ordering pizza”. 

The likes of Qatar’s sovereign wealth fund and Microsoft are now facing up to the growing realisation that they may have backed a business that largely reported artificial revenues.

London-based Builder.ai collapsed last month after an internal investigation found evidence of potentially bogus sales, with revenues previously reported under Duggal’s watch restated to just a quarter of previous estimates.

The probe raised concerns around the legitimacy of sales booked through third-party intermediaries who sold Builder.ai’s products. Former employees allege that missing revenues from these so-called “resellers” amounted to about $120mn over several years.

Now, interviews with former employees and documents seen by the Financial Times suggest that Builder.ai is suspected of using a broader range of methods to inflate some of its revenues, including improperly booked discounts, tiny upfront deposits and seemingly circular transactions with key customers.

“It’s an ocean,” said one former employee, referring to the breadth and depth of questionable revenue recognition practices in which the firm allegedly engaged. 

Those apparent practices have also come under scrutiny from prosecutors. Before the company unravelled, the US Attorney’s Office for the Southern District of New York requested that Builder.ai hand over documents relating to its financial reporting, accounting practices and customer relationships, according to people familiar with the matter.

Builder.ai, which formally filed for bankruptcy in the US earlier this week, and the Southern District of New York declined to comment.

Duggal, who stood down as chief executive in February, also declined to comment. His current lawyers said there were “serious inaccuracies” in the points the FT had put to him for comment.

A previous set of lawyers that Duggal and Builder.ai hired last year told the FT that neither he nor the company had misreported sales figures.

One senior former employee claimed, however, that the amount booked through resellers was far lower and that “double-digit millions” were collected through this channel.

Builder.ai worked with dozens of clients to build bespoke apps and websites. These were often small companies or individuals who could not employ their own developers. The London-based start-up offered to make apps cheaper and quicker than rivals, thanks to its use of AI techniques.

Reported revenue should typically reflect only the amount received and expected to be received from clients, according to people familiar with the matter and documents seen by the FT. If a customer was given a special deal, any sales recorded should usually match the lower price agreed rather than the full list price, they added.

However, several ex-employees said it was commonplace for staff at Builder.ai to offer large discounts to customers while booking the full value of the contract under its sales.

One said they saw revenues based on these inflated prices presented in a company-wide meeting and a slide deck given to shareholders, who were seemingly unaware that the figures did not account for discounts.

One way that discounts were applied allegedly involved the company offering customers different prices for different delivery speeds of its app and website projects. Former employees and others familiar with the company said that Builder.ai would sometimes offer customers a free upgrade to the faster option, but book the contract at the more expensive price.

Lawyers for Duggal and Builder.ai told the FT last year that all sales data, including both the full sales price and commissionable price post-promotions, were reported to the company’s finance department and board to ensure accurate revenue recognition.

They added that Builder.ai’s accounting methods had been subject to multiple rounds of financial and commercial due diligence by two of the Big Four audit firms.

Former employees said that Builder.ai sometimes booked discounts as a marketing or sales cost. While one of these employees questioned this practice, another senior employee claimed this approach was verified and approved by third parties.

Several former staffers also said that the company’s salespeople would often sign up customers at trade fairs to high-value contracts that only required tiny upfront deposits. They said app development projects that cost tens of thousands of dollars would often be booked with upfront payments of just hundreds of dollars, or even less.

The full value of these contracts was, they claimed, booked as a receivable — revenue that had been pledged but not yet paid — but often very little was ultimately collected. Two people with the knowledge of Builder.ai’s finances said that the company racked up more than $26mn in unpaid revenue from these low-deposit deals struck at trade fairs.

Last year lawyers for Duggal and Builder.ai said it was incorrect that the entire project fee from tech fair customers was booked as revenue at the point of deposit payment, and that the deposit was typically a lot more than “tens or hundreds of dollars”.

The senior former employee said that while small discounts were sometimes initially accepted, a full invoice would not be generated until more money was paid to kick off the project later.

Some of Builder.ai’s trading relationships with businesses where money flowed back and forth have also attracted attention.

In 2023, Builder.ai announced it was building an app for the Ultimate Tennis Showdown, an international sports league founded by Serena Williams’s former tennis coach, Patrick Mouratoglou. UTS was billed in excess of $500,000 for the project, one of its biggest projects that year, according to people familiar with the matter and a document seen by the FT.

Around the same time, Builder.ai agreed to sponsor the company’s London tournament, according to people familiar with the arrangement, one of whom said the contract amounted to hundreds of thousands of dollars. 

Duggal, a tennis fanatic, was also a shareholder in UTS, through his venture capital firm, SD Squared Ventures.

The tennis group added it “acted properly at all times and reserves all its rights and remedies against Builder.ai”. UTS is listed as a creditor in the technology group’s US bankruptcy filings.

The senior former employee said that Duggal had also recused himself from some decisions relating to UTS.

Internal investigations in the run-up to Builder.ai’s collapse also scrutinised the nature of its trading with VerSe Innovation, an Indian content platform company backed by Google and Microsoft that was last valued at nearly $5bn, according to people familiar with the matter.

They added that Builder.ai booked at least $75mn of sales to VerSe over several years — which included about $18mn for brokering cloud hosting — while VerSe had in turn billed Builder.ai in excess of $50mn. Internal investigations raised concerns around the validity of these balances, excluding the cloud component that flowed to third parties, the people added.

VerSe’s co-founder, Umang Bedi, confirmed to the FT that the company spent more than $80mn with Builder.ai across four to five years and received $53mn revenue from Builder.ai for “advertising services”. He added that Builder.ai had accounted for up to 8 per cent of VerSe’s revenue at times.

He described the size of these trade balances as “chalk and cheese”, adding that any claims of “circular money flow and inflation of revenue” were “baseless and not true”.

Bedi also showed the FT a range of documents that he said proved VerSe’s trading with Builder.ai was genuine. These included invoices for cloud services, contracts and detailed development logs for apps developed by Builder.ai, and summaries of advertising campaigns VerSe ran for Builder.ai that included how often they had been viewed.

“Every revenue item that we record in our financial statements, including that from Builder.ai, relates to legitimate services that were rendered or delivered,” Bedi said. “All the expenses that are recorded in our financial statements correspond to actual services or products received by the company, which has been verified by a ‘Big Four’ auditor for the last 10 years.”

Following a Bloomberg article outlining its trading with Builder.ai, VerSe has publicly stated that claims that it “colluded with Builder.ai to inflate revenues” are “false” and “defamatory”.

Having relocated from London to his new base in United Arab Emirates, Duggal has recently held calls with investors about the prospect of buying it out of insolvency.

According to several people familiar with his pitch, he has dismissed allegations of revenue inflation and instead cast recent events as a organised campaign against him.

In his telling, powerful investors have banded together to wrest control of Builder.ai’s valuable intellectual property. The start-up’s investors, who are now among its creditors, declined to comment.