A minority shareholder in Web Summit was in “deep cahoots” with a venture capitalist to “make off” with an investment fund that traded off the tech conference’s name when he resigned from the company’s board in 2021, the High Court heard on Tuesday.
David Kelly, who owns 12 per cent of the shares in Manders Terrace – the entity behind Web Summit – is being sued by his former friend and business partner, Web Summit chief executive Paddy Cosgrave, for alleged breaches of his duties to the Dublin-based company, where he was in situ as a director from 2012 to early 2021.
Mr Cosgrave claims that through his actions, Mr Kelly – a friend from their school days together at Glenstal Abbey private boarding school in Limerick – caused Web Summit a loss of more than $12.3 million (€11.2 million).
The case is one of five interrelated actions that are being heard together in the High Court in a civil trial involving Mr Cosgrave, Mr Kelly and Daire Hickey, who owns 7 per cent of Manders Terrace and is also a former director.
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All three men were in court in Dublin on Tuesday for the opening day of what could be a nine-week trial.
Mr Cosgrave’s case against Mr Kelly, who strongly denies the allegations, revolves around the establishment of an investment fund, following on from the success of an earlier Web Summit-adjacent venture fund, called Amaranthine, that had invested in high-potential companies.
[ Web Summit case day one - as it happenedOpens in new window ]
The court heard on Tuesday that a limited partnership was set up to develop the first fund, with Mr Kelly acting as Web Summit’s representative in the partnership arrangement. Patrick Murphy, a fund manager, was also brought in to raise and administer the fund.
Bernard Dunleavy SC, for Mr Cosgrave, told the court in his opening statements that correspondence between the three men from 2018 clearly showed that they were planning to establish a follow-on fund even before the first fund had been raised.
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“The real value to any fund is the follow-on fund,” the barrister said earlier in the day, citing statistics that 69 per cent of funds go on to set up a second fund and more than 80 per cent of second funds establish a third.
When discussions about the follow-on fund were taking place in 2020, it was clear that the second fund – which Mr Kelly and Mr Murphy were allegedly working on before Mr Kelly’s resignation – would leverage Web Summit’s unparalleled connections to attract investors, the court heard.
At the same time, however, Mr Kelly began to express his desire to leave Web Summit. The court heard he had messaged Mr Cosgrave in early 2021 to tell him that he wanted to “make life simple” for himself and “start my own small business or work for someone else”. He said it was time to “pull the cord” on his time with Web Summit.
When Mr Kelly resigned as a director of Web Summit, Mr Cosgrave thanked him and suggested a three- to six-month transition out of the second fund, Mr Dunleavy said.
It was then that Mr Kelly realised that “the jig is up”, the barrister told the court, because Mr Kelly emailed Mr Murphy, saying: “I think I need to resign as a director this week, probably losing some leverage there, and the situation is becoming urgent.”
Mr Dunleavy said that a benign interpretation of Mr Kelly’s actions is that he was “speaking out of both sides of his mouth” and was making arrangements with Mr Murphy to “swipe” the second fund from “under Web Summit’s nose”.
The fund, called Semble, was then launched in the summer of 2021 by Mr Kelly and Mr Murphy. Web Summit and Mr Cosgrave only got wind of it, Mr Dunleavy claimed, when The Irish Times reported in May of that year that Mr Kelly and Mr Murphy had gone to market with the new $50 million fund.
The “speed and proximity” of the launch to Mr Kelly’s resignation had deprived Web Summit of what was a “maturing business opportunity” to launch its own fund, Mr Dunleavy said, causing a loss of about $12.3 million.
The case continues on Wednesday when the court will hear opening statements from counsel for Daire Hickey who, along with Mr Kelly, is suing Mr Cosgrave for alleged shareholder oppression and breaches of a profit-sharing agreement.
