5 Generative AI Startups That Collapsed in 2025—And Why

A wave of shutdowns swept the generative-AI sector in 2025 as cash tightened, customer expectations hardened and the race to productize “magic” models collided with basic business math.

Investors have grown pickier, commoditisation of core LLM capabilities left many wrappers with thin moats, and enterprise buyers demanded reliable ROI rather than demo-day demos. The result: dozens of small Gen-AI tools and several high-profile startups either wound down operations or filed for insolvency this year, with founders citing everything from failed pivots and overstated metrics to creditor seizures and safety concerns.

Industry trackers report hundreds of AI tools and startups ending operations in 2025, underlining that innovation alone is no longer enough — unit economics, defensibility and honest go-to-market execution matter.

Below: five generative-AI companies that shut down in 2025, what they built, who started them, and the factors that ended each venture.

Builder.ai — from unicorn to bankruptcy

Builder.ai filed for insolvency earlier this year after raising $450 million in multiple rounds. Founded as Engineer.ai and later rebranded Builder.ai, the London-based company pitched automated app building powered by an assistant called “Natasha.” The firm was founded by Sachin Dev Duggal; it had raised large rounds and attracted backers including Microsoft and the Qatar Investment Authority.

Why it shut: An internal probe and auditors sharply revised previously reported revenues downward, exposing questionable sales practices and an overreliance on human engineers rather than pure automation. Creditors seized funds, forcing insolvency filings and mass layoffs; regulators and prosecutors opened inquiries as the company entered bankruptcy proceedings. The collapse was widely covered as a cautionary tale about “AI-washing” and inflated metrics.

Subtl.ai — promising Gen-AI, local execution problems

Subtl.ai was an Indian Gen-AI shop that built embeddings and vertical models and reportedly worked with a handful of institutional clients. Founder Vishnu Ramesh publicly announced the wind-down after an intense, short run.

Why it shut: The startup said it failed to secure follow-on capital and struggled to convert pilot projects into repeatable, contractually committed revenue; enterprise procurement patterns, long sales cycles and high expectation-setting for free trials hurt runway. The shutdown highlighted how even technically strong teams can fail when commercial traction and funding don’t align.

CodeParrot — a YC design-to-code copilot that ran out of runway

Bengaluru & San Francisco-based startup CodeParrot, a Winter 2023 Y Combinator alum, shut its doors after two-and-a-half years of trying to build AI-powered developer tools. Founded by Vedant Agarwala and Royal Jain — offered developer tooling that turned Figma screens and screenshots into production-ready UI code (React, Flutter, HTML) via LLMs and IDE integrations.

Why it shut: Despite YC pedigree and early traction, the team hit “pivot hell” and couldn’t scale revenue; after burning a ~$500K pre-seed and peaking at only a few thousand dollars MRR, the founders chose to shutter rather than chase more experiments without viable follow-on funding. The closure underlined the difficulty of turning developer love into sustainable ARR in a crowded market.

theGist — workplace insights AI that couldn’t scale

Israeli-founded theGist, launched by serial entrepreneurs Itay Dressler, Itzik Ben-Bassat and Nir Zohar, aimed to cut through information overload by surfacing AI-driven workplace insights for teams and knowledge workers.

Why it shut: After raising a pre-seed round (~$7M) and launching product, theGist’s team concluded the market and unit economics weren’t materialising fast enough. The founders opted to return investor funds and close the operation rather than attempt a drawn-out pivot; the company cited difficulty in scaling product value across disparate enterprise workflows.

Dot (New Computer) — an AI companion turned down

AI startup New Computer announced it is winding down operations and sunsetting its companion app Dot. Developed by former Apple designer Jason Yuan and Sam Whitmore), Dot was an AI “companion” app that positioned itself as a personal confidante and adviser with a conversational, personality-driven UX.

Why it shut: The founders announced a wind-down citing divergent visions for the product’s future and the broader challenges of running a companion app that must balance personalization, safety and monetisation. Dot gave users a deadline to export data as the team formally sunset the service — a reminder of the unique ethical and retention pressures companion apps face.