Web Summit co-founder sued over an alleged $10 million loss related to the venture fund

One of the founders and major contributors to the world’s largest technology conference – the Web Summit – claims that a fellow founder participated in a secret effort to create an investment fund for his own personal gain using company resources.

Patrick Cosgriff, director and majority shareholder of Web Summit Holdings, claims that David Kelly was involved in creating a multi-million euro fund under false pretense that actually shaped the company’s opportunity and cost the company a big loss.

Mr. Kelly made counter allegations, claiming to be the victim of shareholder persecution. He is seeking 1.25 million euros by buying his shares in Web Summit.

Mr. Cosgrave, through his holding company, Manders Terrace Ltd, is suing Mr. Kelly seeking to order Mr. Kelly to account for the gains he allegedly made on the Manders/Web Summit account and that he also compensate the company for the losses.

He claims that the alleged breaches of fiduciary duty are likely to result in a loss of $10 million (€8.63 million) for Web Summit.

The case, with approval Monday, was entered by Justice Dennis MacDonald on the Supreme Court’s fast-track trade list at Bernard Dunleavy’s request, for Manders/Web Summit.

Frank Kennedy BL, for Mr. Kelly, agreed to admit but said the allegations were « totally disputed » and did not accept their characterization by Cosgrave.

affidavit

Cosgrave said in an affidavit that Mr. Kelly, and other co-founder, Patrick Murphy, who is not being sued here, co-founded with him in 2018 the Amarantine Fund 1 to take advantage of the significant resources, knowledge and connections from hosting highly successful international web summits .

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

Cosgrave said Web Summit invested $2 million in the fund, and it was accepted right from the start that investing Web Summit’s capital, brand name, goodwill, and assets were a key part of the fund’s goal.

He said Kelly made no capital investment while Murphy put in $250,000. A total of $30 million has been invested, he said.

Cosgrave said he filed a separate lawsuit in California against Murphy, Kelly, and three companies, alleging, among other things, fraud and working to secretly establish a follow-on fund for Amarantine I.

The defendants in this case allegedly violated their duties by improperly profiting by misappropriation of Amaranthine’s name, Web Summit assets, and goodwill.

Cosgrave said the three men had originally thought about setting up a follow-up fund and discussions had begun the fall of last year about it, but a dispute ensued.

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 umbilical cord ».

Exploit

Cosgrave said Mr. Kelly, with whom he went to school, used their long personal relationship to convince him he no longer wanted to work at Web Summit and wanted to get out of the venture capital sector.

After Kelly’s resignation in April, Cosgrave said he was stunned to learn that he had been misled and that Kelly and Murphy were working on their second fund.

They created Semble Fund II LP, a Delaware limited partnership to serve as their new venture capital fund. Mr. Cosgrave said « Semble » is a brand and web nugget brand that has been used by the company for a number of years in connection with its conferences. He had shown an intent to misleadingly present the Semble Fund as a successor to Amaranthin, he claimed.

Cosgrave also says it has been discovered that Kelly and Mr. Murphy arranged for Cosgrave to be fired as managing director of the US Amarantine Fund.

He said that Mr. Kelly and Mr. Murphy had confronted about the use of the Semble name and although they had said they would stop doing so, they had continued to use the name for marketing and fundraising.

Mr. Kelly confirmed in correspondence with the plaintiff’s attorney that he acted correctly. He refused to make the pledges Mr. Cosgrave had sought, and legal action ensued.