The downfall of Builder.ai reveals the risks associated with ‘FOMO investing’ in artificial intelligence.

      The downfall of Builder.ai highlights the increasing danger of “FOMO investing,” according to a specialist in technology growth intelligence.

      Builder, once among the most well-funded startups in Britain, is now seeking bankruptcy due to financial issues.

      This insolvency follows substantial investments in the company, with prominent supporters like Microsoft and Qatar’s sovereign wealth fund contributing over $500 million to the startup, which sought to streamline software development using AI.

      As a result of this funding, Builder achieved coveted unicorn status, with a valuation surpassing $1.3 billion. However, these significant sums were not enough to sustain the business.

      Builder attributed its failure to “historic challenges and past decisions” that negatively impacted its financial situation.

      The company faced allegations of inflating sales figures during Sachin Dev Duggal’s tenure as founder. Duggal resigned as CEO in February but retained the title of “chief wizard.”

      His successor, Manpreet Ratia, informed employees this week about the bankruptcy filing, stating that “unexpected and irreversible actions” from lenders led to the company's downfall.

      Carrie Osman, CEO of growth intelligence firm Cruxy, pointed to another factor: “FOMO investing.”

      “In recent years, technology like GenAI has been greatly overhyped, putting pressure on investors and boards to identify the latest, most attractive applications for AI,” she remarked.

      “Fueled by FOMO rather than fundamentals, investors are hastily entering deals with minimal examination, inflating valuations and neglecting due diligence.”

      Her caution comes in the context of a protracted “AI gold rush.” Since the introduction of ChatGPT in 2022, investors have significantly directed their resources toward artificial intelligence firms.

      According to a recent report by Silicon Valley Bank (SVB), around 40% of last year's US venture capital came from funds that focused on AI. In 2021, that amount was only 10%.

      SVB also identified a rising number of “zombiecorns”—unicorns that display weak revenue growth and problematic unit economics.

      Builder has now joined this group facing difficulties. Osman warned that more such cases may arise.

      “Microsoft and others failed to recognize the true value and ROI from Builder’s product and didn’t delve deeper than the headlines and hype,” she commented.

      “This is not the first instance of disastrous FOMO we’ve witnessed over the years — companies like Zymergen, Frank, and Theranos serve as notable examples. And with the ongoing phenomenon of AI washing, this won’t be the last occurrence.”

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