Web Summit, the company founded by Paddy Cosgrave, has filed legal action in the United States against two former business partners it accuses of secretly establishing an investment fund to profit from the company's success.
The allegations, which are strenuously denied, relate to the creation of a fund the company maintains benefitted from its association but from which it and Mr Cosgrave were excluded.
Among the detailed claims are that fund managers David Kelly and Patrick Murphy went behind Mr Cosgrave's back to woo investors from an initial fund all three had been partners in.
The claims, according to court papers filed in San Franciso, “arise from a plan hatched by Murphy and Kelly to deceive Web Summit and Mr Cosgrave, breach an agreement with them, and secretly establish a follow-on fund that improperly usurped Web Summit’s brand, resources and assets”.
Sources indicate the litigation has arisen from a falling out between Mr Kelly and Mr Cosgrave and from a failure to reach a consensus on how the new fund would be structured. Mr Kelly resigned as a board member and employee of the Web Summit earlier this year.
The company's action – alleging breach of contract, fraudulent misrepresentation, unjust enrichment, violations of unfair competition law and trade libel among a total of nine allegations – is seeking compensation by way of a jury trial. A separate but related legal action has been filed against Mr Kelly in the High Court in Dublin.
A spokesman for Mr Kelly said it was a “meritless case. We will strongly defend our position”.
It is understood Mr Kelly and Mr Murphy will argue that the second investment fund was only established independently of Mr Cosgrave’s participation after the three could not agree on terms.
The US case is filed under the plaintiff name Manders Terrace, the operator of Web Summit. The papers describe how in 2018, in a bid to leverage the success of its global conferences, it founded the initial venture capital Amaranthine Fund I entity with the defendants.
“Web Summit was in a unique position to establish such a fund given its broad and well-established relationships with investors, founders, portfolio companies and other prominent figures in the technology industry,” the documents say. Given the structure of such funds, the defendants are likely to argue that the fund was never a Web Summit fund per se.
However, the papers set out that from the fund’s inception the Web Summit’s capital investment, brand, connections and intellectual property would play a central role. It notes an initial capital commitment of $2 million (€1.7 million) and says it was granted 30 per cent share of profits.
“Web Summit played a key role in attracting investors, introducing start-up companies for potential investment, and utilising Web Summit resources, assets, data, employees and intellectual property to make the fund successful,” the papers state.
Mr Cosgrave was a member of the “general partner” of the fund and, along with Mr Kelly, Web Summit’s representative on its management company.
However, relations appear to have soured when the second follow-on fund was being created – with apparent disputes over how much of a role the Web Summit played in the initial fund’s success and the extent of profit share that should be accorded to the company and its chief executive. Mr Cosgrave, however, is understood to have been seeking an increased share of profits for certain Web Summit staff.
The legal action alleges that somewhere around this time the defendants made efforts to go about establishing their own venture capital fund – eventually called Semble II – squeezing Mr Cosgrave out in the process.
They began to “covertly establish” it, market it to existing investors, and obtain binding commitments, the papers claim.
“As part of their scheme, and in an effort to further conceal their illicit fundraising and marketing activities, in May 2021 Kelly and Murphy removed Mr Cosgrave and Web Summit without cause from the management company and general partner, respectively.”
However, a spokesman for Mr Kelly and Mr Murphy said Mr Cosgrave and Web Summit were just “one of many contributors to Amaranthine”, which was founded and run by the two men as a standalone legal entity with third party capital.
“Since the separation, Cosgrave has been intent on disrupting the lives and businesses of David and Patrick. Today’s [US court] filing is a culmination of this,” he said.
“This is a meritless case, which follows a clear pattern of behaviour by Cosgrave. Patrick and David will strongly defend their position.”
A spokeswoman for Mr Cosgrave said the lawsuit had been taken “in the interest of protecting all Web Summit stakeholders”.