Dispute between Web Summit founders goes to Commercial Court

A co-founder and majority shareholder in 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.
Dispute between Web Summit founders goes to Commercial Court

Ann O'Loughlin

A co-founder and majority shareholder in 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 Summit holding company, says David Kelly was involved in the establishment of a multi-million euro fund under false pretences that effectively constituted the company's opportunity and has cost the firm significant loss.

Mr Kelly has counter-claimed saying he is the victim of shareholder oppression and 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 that he (Kelly) be made to account for gains he allegedly made at Manders/Web Summit's expense and that he also indemnify the firm for losses.

Fiduciary duty

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 to 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 says in an affidavit that Mr Kelly, and another co-founder Patrick Murphy, who is not being sued here, were involved along with him (Cosgrave) in 2018 in the setting up of the "Amararanthine Fund I" to leverage the substantial resources, knowledge, connections from hosting the highly successful international Web Summit conferences.

A management company, which all three men were members of, was set up to manage the fund under a limited partnership agreement.

Capital investment

Mr Cosgrave says Web Summit invested $2 million to the fund and that it was accepted from the beginning that it was Web Summit's capital investment, brand name, goodwill and assets were a fundamental part of the fund's purpose.

He says Mr Kelly made no capital investment while Mr Murphy put in $250,000. A total of $30 million was invested, he says.

Mr Cosgrave says that 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 says 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".

Personal relationship

Mr Cosgrave says Mr Kelly, who he went to school with, exploited their long personal relationship to persuade him he no longer wanted to work for Web Summit and 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 Kelly and 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 says "Semble" is a Web Summit brand and mard 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 says.

Mr Cosgrave also says it was discovered Mr Kelly and Mr Murphy arranged for his (Cosgrave's) removal as managing director of the American company for the Amaranthine fund.

He says 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 behave properly. He refused to offer undertakings sought by Mr Cosgrave and legal proceedings followed.

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