A former director of Web Summit who holds a minority stake in the business was engaged in an “active deception” when he “co-opted” the global tech conference company’s opportunity to set up a second investment fund, the High Court heard on Tuesday.
David Kelly, who owns 12 per cent of the company behind Web Summit, is accused by his former friend and business partner, Paddy Cosgrave, of breaching his duties as a director of the business by establishing an investment fund after Mr Kelly had resigned from the board of Web Summit in 2021.
The action is one of five separate but related High Court cases involving Mr Cosgrave, who holds 81 per cent of the shares in Web Summit, and two minority shareholders in Web Summit, Mr Kelly and Daire Hickey, being heard in a civil trial, which began on Tuesday.
Mr Kelly and Mr Hickey, who holds a 7 per cent stake in the business, are also suing Mr Cosgrave and Web Summit, alleging shareholder oppression and breaches of a profit-sharing agreement.
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All of the parties strongly deny the accusations.
Barrister Bernard Dunleavy SC, counsel for Mr Cosgrave, said in his opening statement that the five sets of proceedings are linked by a “bitterness which animates every aspect” of the cases.
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He said that when reading through the witness statements, Mr Justice Michael Twomey and members of the court must have been reminded of “the more regrettable aspects of family law” rather than the sort of claims one would expect to find in the commercial court.
As in some family cases, Mr Dunleavy said it is sometimes difficult in commercial legal matters to convince the parties that their interests would be better served by settling issues out of court.
He said that Mr Kelly had failed to show “loyalty” and “faithfulness” to Web Summit by setting up a $50 million (€46 million) venture capital fund after his departure from the company, depriving Mr Cosgrave and the conference company’s opportunity to capitalise on the success of an earlier fund called Amaranthine.
Mr Kelly’s “infidelity” to Web Summit was at the root of Mr Cosgrave’s action against him, Mr Dunleavy said.
He said the court was faced with an example of “active deception” and “real badness” on the part of Mr Kelly.
Web Summit and its relationship with Amaranthine was the “secret sauce” behind the fund’s success, the court heard. The conference, which takes place annually in Lisbon, gave the fund an “unfair advantage” over its competitors, Mr Dunleavy said.
The conference is like “the Klondike or the gold rush in California”, the barrister said, “except everyone is wearing comfortable t-shirts”. “Everyone is trying to find the next thing or be the next thing. But only one entity has all the information to be able to match capital to companies and that is the company behind the conference itself.
“The real value to any fund is the follow-on fund,” the barrister said, 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.
Mr Kelly’s actions had “deprived” Web Summit of that opportunity, he said, proving him to be “disloyal and faithless”.
The case continues on Tuesday afternoon.
