Web Summit, the company founded by Paddy Cosgrave, has filed a lawsuit in the United States against two former business partners that it accuses of secretly setting up an investment fund to profit from the company’s success.
The allegations, which are vigorously denied, relate to the creation of a fund which the company maintains benefited from its association but from which she and Mr. Cosgrave were excluded.
Among the detailed claims, fund managers David Kelly and Patrick Murphy went behind Mr Cosgrave’s back to woo investors in an initial fund that all three had been partners of.
The claims, according to court documents filed in San Francisco, “result from a plan devised by Murphy and Kelly to deceive Web Summit and Mr. Cosgrave, break a deal with them and secretly establish a follow-up fund that improperly usurped the brand. from Web Summit. , resources and assets ”.
Sources say the dispute arose out of a falling out between Mr Kelly and Mr Cosgrave and a failure to reach 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, misrepresentation, unjust enrichment, violations of unfair competition law and commercial defamation among a total of nine allegations – seeks compensation through a jury trial. A separate but related legal action has been filed against Mr Kelly in the High Court in Dublin.
A spokesperson for Mr Kelly said it was a “baseless case”. We will firmly defend our position.
It is understood that Mr. Kelly and Mr. Murphy will argue that the second investment fund was not established independently of Mr. Cosgrave’s involvement until after the three could not agree on the conditions.
The US case is filed under the plaintiff Manders Terrace, the operator of Web Summit. The articles describe how, in 2018, in an effort to build on the success of her global conferences, she founded the original venture capital entity Amaranthine Fund I 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, holding companies and other figures in the tech industry,” the documents say. Given the structure of these funds, the defendants are likely to argue that the fund was never a Web Summit fund per se.
However, the documents indicated that from the inception of the fund, the capital investment, branding, connections and intellectual property of the Web Summit would play a central role. He notes an initial capital commitment of $ 2 million and says he received 30 percent of the profits.
“Web Summit has played a key role in attracting investors, showcasing start-ups for potential investment, and using Web Summit’s resources, assets, data, employees and intellectual property to ensure the fund’s success. », Say the newspapers.
Mr. Cosgrave was a member of the fund’s “general partner” and, together with Mr. Kelly, representative of Web Summit within its management company.
However, relations appear to have deteriorated when the second follow-up fund was established – with apparent disputes over the role the Web Summit played in the success of the original fund and the extent of the profit share that should be given. to the company and its general manager. Mr. Cosgrave, however, is said to have sought an increased share of the profits for some Web Summit staff.
The lawsuit alleges that around this time the defendants made efforts to create their own venture capital fund – eventually called Semble II – ousting Mr Cosgrave in the process.
They have started “secretly establishing it”, marketing it to existing investors and securing binding commitments, the newspapers say.
“As part of their scheme, and in an effort to further cover up 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 the general partner, respectively. “
However, a spokesperson for Mr Kelly and Mr Murphy said Mr Cosgrave and Web Summit were just “one of the many contributors to Amaranthine”, which was founded and run by the two men as as an autonomous legal entity with third-party capital.
“Since the separation, Cosgrave intends to disrupt the life and affairs of David and Patrick. today [US court] the filing is the highlight, ”he said.
“This is a baseless case, which follows a clear pattern of behavior from Cosgrave. Patrick and David will stand up for their position firmly.
A spokeswoman for Mr Cosgrave said the lawsuit was brought “in the interests of protecting all stakeholders at the Web Summit”.