The collapse of Builder.ai exposes the growing threat of “FOMO investing,” according to an expert in tech growth intelligence.

Builder had become one of Britain’s best-funded startups, but is now filing for bankruptcy due to financial problems.

The insolvency comes after enormous sums were invested into the business. Big-name backers including Microsoft and Qatar’s sovereign wealth fund had poured a total of over $500mn into the startup, which aimed to simplify software development with AI.

The funding gave Builder a coveted unicorn status, with a valuation exceeding $1.3bn. But the eye-watering sums couldn’t keep the business afloat.

Builder blamed the downfall on “historic challenges and past decisions” that strained its financial position.

The company has been accused of inflating sales figures under the leadership of Sachin Dev Duggal, the startup’s founder. Duggal stepped down as CEO in February, but retained the role of “chief wizard.”

His replacement as chief executive, Manpreet Ratia, told employees this week that the company was filing for bankruptcy. Ratia said “unexpected and irreversible action” from lenders had triggered the company’s collapse.  

Carrie Osman, CEO of growth intelligence firm Cruxy, highlighted another cause: “FOMO investing.”

“Technology like GenAI has been massively overhyped in recent years and investors and boards are under increasing pressure to find the latest, sexiest uses for AI,” she said.

“Driven by FOMO rather than fundamentals, investors are rushing into deals with minimal scrutiny, inflating valuations and sidelining due diligence.”

Her warning comes amid an extended “AI gold rush.” Since the launch of ChatGPT in 2022, investors have heavily focused their funds on artificial intelligence companies.

Approximately 40% of last year’s US venture cash came from funds that “list AI as a focus,” according to a report released this week by Silicon Valley Bank (SVB). In 2021, the proportion was just 10%.

SVB also discovered a growing number of “zombiecorns” — unicorns with poor revenue growth and unit economics.

Builder has become another member of the injured flock. Osman warned that more of them are set to emerge.

“Microsoft and others failed to capture the true value and ROI from Builder’s product and didn’t dig below the headlines and hype,” she said.

“This isn’t the first case of disastrous FOMO we’ve seen over the years, either — Zymergen, Frank, and Theranos are all famous examples. And as AI washing continues, this won’t be the last case.”

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