Builder.ai Collapse: Why You Need Software Escrow in 2025

The tech world faced some hard truths on May 20, 2025, when Builder.ai — once valued at over $1.3 billion — entered insolvency proceedings. This UK-based AI startup, backed by Microsoft and the Qatar Investment Authority, had raised $445 million. Yet it collapsed almost overnight, leaving countless businesses scrambling to protect their digital assets and operations.

Yes, Builder.ai's might look like just another startup failure. But it represents a growing trend where well-funded AI companies with weak business models are crashing hard. And when they do, they take their clients' futures with them.

This collapse makes one thing clear: There's no such thing as a "safe" vendor, not even billion-dollar ones with Microsoft's backing. What matters now is understanding how to protect yourself. Below, we explain why vendor failure isn't a risk you can avoid and what you can do to prepare for it.

» Learn how to manage third-party vendor risks

Key takeaways

• Builder.ai's $445 million collapse proves that even well-funded, high-profile vendors can fail suddenly and completely.
• The AI startup bubble creates especially high risks as companies with unsustainable business models burn through funding without building real technology.
• Software Escrow — particularly SaaS Escrow and Continuity Escrow — gives you real protection against vendor failure, keeping your business running when disasters hit.

What happened to Builder.ai?

Builder.ai's collapse happened when several major problems hit at once. The company promised to make app and website development easy using AI tools, but everything fell apart simultaneously.

The final blow came from creditor Viola Credit, which grabbed $37 million from Builder.ai's accounts, leaving the company with just $5 million in cash. That wasn't nearly enough to cover their massive debts — $85 million to Amazon and $30 million to Microsoft.

Then came the really bad news. Internal investigations found the company had been lying about its revenue. They claimed $220 million in 2024 sales, but the real number was closer to $55 million. That's a 75% lie. These fake sales numbers destroyed what little investor confidence was left.

Even cost cuts couldn't save them. CEO Manpreet Ratia, who had just replaced founder Sachin Dev Duggal months earlier, had to tell employees the company was shutting down during a company-wide call.

Why are AI startups so vulnerable?

Builder.ai isn't alone. These companies burn cash at unsustainable rates, spending massive amounts on computing power, AI talent, and infrastructure while barely making any real revenue. Venture capital funding for AI startups hit $74.6 billion in 2021, dropped to $42.5 billion in 2023, then surged back to over $100 billion in 2024.

Despite all this money, investors are getting skeptical about high-profile failures like Builder.ai.

Recent collapses tell the same story:

• Ghost Autonomy raised nearly $220 million for AI-driven autonomous driving but shut down in 2024 due to skepticism about its approach and unrealistic timelines.
• Inflection AI raised $1.5 billion but collapsed after generating minimal revenue.
• Tally, an AI-driven fintech startup, closed in 2024 despite raising over $200 million when it couldn't scale operations profitably.

Most AI companies are just "wrappers" around existing models like GPT-4 or Claude. They don't offer much unique value. When big platforms add those same features natively, these wrapper companies become worthless.

Industry experts think 99% of AI startups will fail by 2026. They just don't have sustainable business models or real differentiation. This creates massive risk for any business depending on AI vendors for important software.

What Builder.ai's collapse cost its clients

When Builder.ai entered insolvency, its clients faced immediate and potentially devastating consequences. Businesses that had put time, money, and resources into the platform suddenly risked losing everything:

• Their applications and websites built on Builder.ai's platform went dark and shut down their digital operations completely.
• All their business data stored on Builder.ai's cloud servers (customer info, transaction records, operational data) disappeared.
• Source code and intellectual property for custom applications they'd paid Builder.ai to develop became inaccessible forever.
• Technical support and maintenance vanished overnight, leaving their applications vulnerable to security problems and performance issues.

The financial impact extends beyond immediate losses. Companies may need to rebuild applications from scratch, migrate to new platforms, or find alternative vendors, all while their business gets disrupted and they lose revenue.

6 Warning signs of vendor failure

Many of these failures are predictable if you know what to look for. Watch for these red flags in your vendors:

1. Financial stress signals: Delayed payments to suppliers, layoffs, office closures, or sudden leadership changes. Builder.ai showed several of these before collapse — CEO replacement and massive cost cuts from $40M to $21M quarterly.
2. Revenue inconsistencies: Vague financial reporting, missed revenue targets, or reluctance to share customer metrics. Builder.ai's 75% revenue overstatement was a major warning sign.
3. Technical debt accumulation: Slower feature releases, increased downtime, delayed bug fixes, or reduced customer support responsiveness. These often indicate resource constraints.
4. Market positioning problems: Heavy reliance on third-party platforms, lack of unique differentiation, or "wrapper" business models that could be easily replicated by larger players.
5. Funding desperation: Frequent fundraising attempts, down-rounds, or bridge financing can signal underlying business model problems.
6. Client concentration risk: Heavy dependence on a few large clients or partnerships that could disappear quickly.

» Use Codekeeper's free risk assessment to identify vulnerabilities in your vendor relationships

How software escrow protects your business

Software escrow protects businesses against vendor failure.

You, your vendor, and the escrow agent sign a three-party escrow agreement that defines exactly what materials get deposited (source code, databases, documentation, deployment scripts) and what events trigger release. Common triggers include vendor bankruptcy, failure to provide support for 30+ days, or breach of your licensing agreement.

The escrow agent — a neutral third party like Codekeeper — verifies that deposited materials are complete and usable through regular testing. Your vendor updates the deposit whenever they release new versions, ensuring you always have access to current materials.

When trigger events occur (bankruptcy, service failure, or disappearance), you get access to everything you need to:

• Keep your applications running without interruption
• Migrate to new platforms or vendors
• Bring development in-house if needed
• Maintain access to your data and configurations

However, today's cloud-based business environment often requires more specialized protection than traditional escrow provides.

For cloud applications, SaaS Escrow handles the unique challenges of hosted software with daily syncs and verified recovery processes. For mission-critical systems, Continuity Escrow goes further by maintaining your vendor payments if your vendor fails and keeping everything operational for up to 90 days while you transition.

» Learn how software escrow protects your AI investments

Why software escrow is critical in 2025

Today's businesses are more vulnerable to vendor failure than at any point in history. Cloud dependency has exploded — 85% of business applications are projected to be SaaS-based by 2025. These tools power core operations, from customer relationship management (CRM) to financial systems. When these vendors fail, recovery is far more complex than installing new software.

According to Gartner, 75% of organizations report that migrating off a failed SaaS platform takes six to 12 months and costs an average of $500,000 due to data migration, retraining, and workflow reconfiguration.

The AI startup bubble makes this risk acute. Companies that seemed bulletproof months ago — like Builder.ai with its Microsoft backing — are collapsing overnight.

Meanwhile, businesses have become deeply integrated with vendor platforms in ways that make switching extremely difficult. Custom configurations, API integrations, workflow automations, and years of accumulated data create vendor lock-ins that didn't exist in the traditional software era.

Secure your systems today

The collapse of Builder.ai should serve as an urgent reminder that no vendor, regardless of funding, backing, or reputation, is immune to failure. As AI startups continue facing financial pressures and market consolidation accelerates, the risk to businesses dependent on these vendors only increases.

Don't wait for your vendor to show signs of distress. By then, it may be too late to implement proper protections. The businesses that weather vendor failures successfully are those that plan ahead and implement risk management strategies.

» Ready to protect your business from AI vendor failure? Contact our escrow specialists today to discuss which escrow solution would suit your specific needs best.