If you’re an entrepreneur pitching to venture capitalist investors today, chances are that two letters feature prominently in your pitch deck—AI. Over the past two years, artificial intelligence, or AI, has emerged as the hottest buzzword in the startup world.

According to venture capital database company PitchBook, funding for AI startups has grown at a nosebleed rate, reaching $31 billion last year. Big investors, such as the Japanese conglomerate SoftBank, have pledged to invest hundreds of billions in AI over the next five years.

The glut of funding on offer has created a vicious circle where startups increasingly make exaggerated AI claims to tap into these investor dollars. UK investment firm MMC Ventures captures this dynamic succinctly. MMC says that startups claiming AI in their pitch component have been able to attract as much as 50% more funding than other software companies. On the flipside, MMC also suspects more than 40% of those companies don’t really use any form of AI in their products beyond featuring the buzzword heavily in their pitch decks.

If recent reports are to be believed, Gurugram-headquartered Engineer.ai is one such company. It has raised nearly $30 million in funding from DeepCore, a SoftBank-owned investment vehicle, and other reputed investors such as Lakestar (an early investor in Facebook and Airbnb). DeepCore’s investment is particularly validating for the company—Engineer.ai is the first and hitherto only startup that DeepCore has backed outside Japan.

However, in a scathing article, The Wall Street Journal (WSJ) alleged that the company’s claims of having built an artificial intelligence-assisted software app development platform was, quite simply, a lie. Instead of using AI (artificial intelligence), Engineer.ai reportedly relied almost completely on human engineers, while making exaggerated claims around AI to attract customers and investment. 

Relying on statements of a former Engineer.ai employee, who filed a wrongful termination suit against the company, and other unnamed sources, WSJ saw fit to paint the startup as an exemplar for startups using the hype around AI to seduce investors.

The WSJ report went on to say that Engineer.ai’s AI claims are “inflated even in light of the fake-it-till-you-make-it mentality common among tech startups”—that Engineer.ai only started to build the technology needed to automate app-building in the last two months and that the company was more than a year away from being able to use any AI for its core service, according to its sources.

The report also said that Engineer.ai has little to no engineering talent to build the AI technologies that it was claiming to leverage and that conventional software, rather than AI, was used to automate some parts of the software development cycle, with most of the work overall performed manually by staff.

AUTHOR

Sumanth Raghavendra

Sumanth is a serial entrepreneur with more than eighteen years experience in running startups. He is currently the founder of Deck App Technologies, a Bangalore-based startup attempting to re-imagine productivity software for the Post-PC era. Sumanth’s columns appear regularly in leading publications. He holds MBA degrees from the Indian Institute of Management, Bangalore and Thunderbird, The American Graduate School of International Management, USA.

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