The recent bankruptcy filing of Builder.ai, once a promising AI startup, has ignited discussions about the perils of “FOMO investing,” where investors prioritize trends over sound financial analysis. This is according to Carrie Osman, CEO of growth intelligence firm Cruxy.

Builder.ai,a UK-based startup that aimed to simplify software progress using artificial intelligence,had attracted significant investment before its financial troubles led to insolvency.The company had secured over $500 million in funding from prominent investors, including Microsoft and Qatar’s sovereign wealth fund.

This funding propelled Builder.ai to unicorn status, with a valuation exceeding $1.3 billion. However,even this substantial financial backing could not prevent the company’s downfall.

The company attributed its collapse to “historic challenges and past decisions” that had strained its financial position. Builder.ai had faced accusations of inflating sales figures during the tenure of its founder, Sachin Dev Duggal, who stepped down as CEO in February but remained as “chief wizard.”

Manpreet Ratia,who succeeded Duggal as chief executive,informed employees that the company was declaring bankruptcy,citing “unexpected and irreversible action” from lenders as the catalyst for the collapse.

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

Osman of Cruxy argues that “FOMO investing” played a significant role in Builder.ai’s demise. “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 stated.

Osman’s warning comes amid a surge of investment in artificial intelligence companies since the launch of ChatGPT in 2022, with investors eager to capitalize on the perceived potential of AI.

According to a report by Silicon Valley Bank (SVB), approximately 40% of US venture capital in the past year was directed towards funds that “list AI as a focus,” a significant increase from just 10% in 2021. SVB also noted a rise in “zombiecorns,” which are unicorn companies characterized by weak revenue growth and poor unit economics.

Osman suggests that Builder.ai’s fate serves as a cautionary tale,highlighting the risks associated with overlooking basic business principles in the pursuit of trendy investments.”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.

She added, “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.”