Web Summit co-founder sued over alleged $10m loss connected to venture fund
Posted on 11th October 2021 at 20:51
A co-founder and majority shareholder in the world’s largest technology conferences – the Web Summit – claims a fellow co-founder was involved in secret efforts to set up an investment fund for his own personal gain by using the resources of the business.
Patrick Cosgrave, a director and majority shareholder in the Web Summit holding company, claims David Kelly was involved in the establishment of a multimillion-euro fund under false pretences that effectively constituted the company’s opportunity and has cost the firm significant loss.
Mr Kelly has counter-claimed, alleging he is a victim of shareholder oppression. He is seeking €1.25 million by way of a buy-out of his shares in Web Summit.
Mr Cosgrave, through the Web Summit’s holding company, Manders Terrace Ltd, is suing Mr Kelly seeking orders Mr Kelly be made to account for gains he allegedly made at Manders/Web Summit’s expense and that he also indemnify the company for losses.
He claims the alleged breaches of fiduciary duty are likely to give rise to a loss of $10 million (€8.63 million) to the Web Summit company.
The case was entered, on consent on Monday, by Mr Justice Denis McDonald into the High Court’s fast-track commercial list on the application of Bernard Dunleavy SC, for Manders/Web Summit.
Frank Kennedy BL, for Mr Kelly, consented to the admission but said the allegations were “utterly in dispute” and he did not accept the characterisation of them by the Cosgrave side.
Mr Cosgrave said in an affidavit that Mr Kelly, and another co-founder, Patrick Murphy, who is not being sued here, were involved along with him in 2018 in the setting up of the “Amaranthine Fund I” to leverage the substantial resources, knowledge and connections from hosting the highly successful international Web Summit conferences.
A management company, of which all three men were members, was set up to manage the fund under a limited partnership agreement.
Mr Cosgrave said Web Summit invested $2 million in the fund and it was accepted from the beginning that Web Summit’s capital investment, brand name, goodwill and assets were a fundamental part of the fund’s purpose.
He said Mr Kelly made no capital investment while Mr Murphy put in $250,000. A total of $30 million was invested, he said.
Mr Cosgrave said he has brought separate proceedings in California against Mr Murphy and Mr Kelly, and three companies, alleging, among other things, fraud and of acting to secretly establish a follow-up fund to Amaranthine Fund I.
It is claimed the defendants in that case violated their duties by improperly profiting by misappropriating the Amaranthine name, and the Web Summit’s assets and goodwill.
Mr Cosgrave said the three men had originally contemplated a follow-on fund and discussions began in autumn last year about that, but a dispute followed.
Mr Kelly then told him he wanted to leave, saying he wanted “to make a simple life for myself” and that it was “time to pull the cord”.
Mr Cosgrave said Mr Kelly, whom he went to school with, exploited their long personal relationship to persuade him he no longer wanted to work for Web Summit and wanted to exit the venture capital sector.
Following Mr Kelly’s resignation in April, Mr Cosgrave says he was flabbergasted to learn he had been misled and that both Mr Kelly and Mr Murphy had been working to set up their own second fund.
They set up Semble Fund II LP, a Delaware limited partnership to serve as their new venture capital fund. Mr Cosgrave said “Semble” is a Web Summit brand and mark that has been used by the company for a number of years in connection with its conferences. It showed an intention to misleadingly present the Semble fund as successor to Amaranthine, he claims.
Mr Cosgrave also says it was discovered Mr Kelly and Mr Murphy arranged for Mr Cosgrave’s removal as managing director of the American company for the Amaranthine fund.
He said Mr Kelly and Mr Murphy were confronted about the use of the Semble name and despite saying they would cease doing it, they continued to use the name for marketing and fundraising.
Mr Kelly asserted in correspondence to the plaintiff’s solicitor that he has behaved properly. He refused to offer undertakings sought by Mr Cosgrave, and legal proceedings followed.
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