Over on his Tumblr, David Kirk writes about how Invest NI, Northern Ireland’s economic development agency, cancelled a forum of local investors after receiving some information about one of the participants. He writes:

“…in early October, less than a week before the forum, I received a link to a news article, on one of the local VC attendees that was invited to the forum.  The nature of the article had serious implications, if only on InvestNI’s understanding of the actual street level investment situations and their judgment on where to go for information.”

The news article Kirk received is this one: Firm’s boss jailed for £680K theft. The article is about David Walsh. Walsh was a Finance Director at an English insurance claims firm, Concept Building Solutions. He was jailed for six years in 2007 after swindling his business partners of £680K. The Preston Citizen wrote at the time:

“Bogus accountant David Walsh, 38, fleeced business partners Dominic Booth and Darren Griffin out of nearly £700,000 to fund a lavish existence, which saw him driving Porsches and Ferraris, wearing flash jewellery and holidaying in Dubai.

As Mr Booth and Mr Griffin’s firm – Clitheroe-based Concept Building Solutions – faced investigation by the taxman for unpaid bills, finance director Walsh still tried to bluff his way out of trouble.

He invented a fictious Iranian businessman, who he said was willing to invest millions of pounds into their insurance franchise company.

But in reality the make-believe tycoon – Christian Shajore – was the name of one of his Persian cats.

Walsh, of Prince’s Reach, Preston, had set up a clearing account, in the cat’s name, through which he moved the majority of the money he stole from Concept, Preston Crown Court, heard yesterday.

And when the cheated partners confronted Blackburn-born Walsh, demanding answers, he claimed they had kidnapped him.”

If you’re an entrepreneur from Ireland, you’re probably scratching your head right now. You’re wondering why you’ve heard that name before. And why the photo looks so familiar. That’s because the David Walsh jailed for £680K theft is the same David Walsh who runs Walsh Doherty Capital, a private equity firm based in Northern Ireland. The firm claims to be part of a bigger investment group called Sebdo Global Investment Group.

People make mistakes. Everyone deserves a second chance. Since leaving jail, Walsh hasn’t made amends. He’s went on to try and con others. Walsh Doherty, his “private equity firm”, is actually an elaborate front for an elaborate money-swindling operation.

WalshDoherty emerged as Northern Ireland’s newest venture capital firm some time within the last year. I first noticed them when they sparked a Twitter storm a few months back after announcing they had “acquired equity” in a Texas-based social media firm, Shout For It, a social network for geeks. Local VC’s Tweeted that they’d never heard of the fund before, despite the article claiming that they were one of the “most active dealflow firms in Ireland”. I agreed. There was something about it that didn’t seem right. I was active (and still am) in startup circles at that time and hadn’t come across them before. And Shout For It’s website didn’t do much to make me less weary. Indeed, the announcement was followed by erratic Tweets from the company’s founder, the self-described “all-round genius”. When I spoke to them afterwards (via Twitter DM), WD simply described him as an “eccentric founder”.

The press release itself was weird (it had clearly been cut and pasted without any rewrite by a journalist). Notice the first paragraph, where it says that WD has “acquired equity” in Shout For It. Acquired equity? No tech journalist or entrepreneur/VC firm would use language like that. They would say, “Walsh Doherty Capital has invested £X million in..” or “has taken a stake in”. The second paragraph uses similarly strange language: “The multi-million dollar equity acquisition of Shout For It concluded on 17 August, following substantial negotiations about the launch and future of the social media company.” It sounded as if the article was written by someone not familiar with investment/VC/startup terminology. I’d never heard the words “equity acquisition” used to describe a VC investment before. It reminded me of an episode of Friends where Joey writes a letter of recommendation to an adoption agency for Chandler and Monica. Wanting to sound smart, he looks up words in a Thesaurus to find “big words” to use. “They are warm, nice people with big hearts” becomes “They are human prepossessing homo-sapiens”.

WD allegedly invested in another company, a games developer called texmex games (@texmexgames). Here’s where things get really weird. A WHOIS lookup of both company URL’s (Shout For It and texmex) show that both were registered on 10th August 2011 in London through hosting company 1 & 1. texmexgames.com was registered by a James Tagedy, of Tagedy Venture Capital (I haven’t been able to identify who this is, another alias?) and Sebastian Doherty (allegedly DohertyWalsh’s/Sebdo Global Investment Group. SGIG seems to be the main business with firms like Doherty Walsh acting as regional “arms”).  How can two startups with an investor in common register their company URL on the same day, in the same location, through the same hosting company?

None of this made sense until I was approached by a local entrepreneur (from Northern Ireland). We’ll call him James. As he’s currently raising funding for his company, James (not his real name) has asked me not to reveal his identity or that of his company. After building a string of successful companies, James was launching another when he was approached by Doherty Walsh via Twitter. After a few exchanges online, they decided to meet. The partner he met with was David Walsh. Walsh said WalshDoherty was interested in investing in the company. This was in early-mid July 2011. By the beginning of August, WalshDoherty had issued a term sheet and negotiations ensued. The exclusivity period (the period in which the startup can only talk with one VC) was due to end on August 31.

One of the terms in the term sheet was what’s known as a “break-up fee”. Negotiations between a startup and potential investor saps resources from both parties, from time spent hammering out an agreement to legal costs. Most negotiations end without investment. So some term sheets come with a break-up fee. While it’s generally used for later-stage financings such as mergers where the incentives to get a deal done are much higher/more costly, it sometimes finds its’ way into term sheets in early stage investments. For startups, it can be used for a range of purposes, one being if the investor/VC finds information that would make investment unfeasible, such as the founder having been convicted of fraud. James term sheet from WalshDoherty had a break-up fee of £10,000, abnormally high for a startup round. In the event that WD found any information about him or the company that had not been disclosed upfront, negotiations would be cut and the fee enforced.

This didn’t concern James, though. “I’d read the term sheet and the fine print. The break-up fee didn’t concern me because I had nothing to hide. I’d declared all information up-front before we entered negotiations with them. There was no reason to believe they would ever have cause to enforce a break-up fee.”

On August 31st, the day exclusivity was due to end, James received an email from WalshDoherty’s account department. I have seen all email exchanges and mail correspondence between James and WD but to protect his identity, I cannot disclose them. I can, however, quote from the correspondence with names redacted. Here’s an excerpt from WalshDoherty’s Aug 31 letter to James:

“We confirm that any obligations under Paragraph 8 “Exclusivity“ has now ended but remind you of the non disclosure clauses of the Term Sheet and that all negotiations including details of our offer and termination remain confidential and not for disclosure to third parties.

We are instructed to enforce the amount payable under the terms of Paragraph 5.4 “The Term Sheet” as signed by The Shareholders. The Transaction Termination Fee is payable under the terms of “The Term Sheet” by the company or the shareholders personally and is now due for payment.”


Here’s Paragraph 5.4, as referenced in WD’s August 31 letter:

“5.4 Should for any reason either party withdraw from the negotiations due to information that would hinder an investment being discovered by the Investors or should the Investors withdraw for any reason after the date of this letter, the Investors shall be entitled to recover from the company, or if the Company has insufficient funds then the Founders personally our costs incurred to date in the form of a transaction termination fee of £10,000 + vat payable on demand.”

James replied by asking what information had made Walsh Doherty a) Decide to terminate negotiations and b) Enforce the break-up fee. “I didn’t understand it. We’d been dealing with David and he’d been extremely keen right up until August 30th. I don’t have a criminal record and there’s nothing else in my background that would make them suddenly weary of investment. I’ve built four successful companies so I have a strong track record. They loved the product. Yet it all changed so suddenly, from the moment we received that letter on August 31st.”

After consulting with his lawyers, James decided to ignore WD, waiting to see what action they would take to claim the £10K break-up fee.

On 13th September, Walsh sent him the following email (from davidwalsh@walshdohertycapital.com):

I did on a personal note hope the matter would not come to this and we could have settled amicably, to which I am willing to be more than generous.

I will say what I said to the last company who challenged one of our agreements, and that is that if you think we have any points in our documentation which have not been tried and tested in the appropriate manner and indeed would issue any legal document without counsel opinion then I would be astonished.

In addition, did your legal advisors not identify this point when you instructed them prior to signing the term sheet ?

Just to clarify the point in question. It is a very straightforward point  and relates to your non disclosure of rather important points prior-due diligence which I explained in full detail to [redacted name].

5.4 Should for any reason either party withdraw from the negotiations due to information that would hinder an investment being discovered by the Investors or should the Investors withdraw for any reason after the date of this letter, the Investors shall be entitled to recover from the company, or if the Company has insufficient funds then the Founders personally our costs incurred to date in the form of a transaction termination fee of £10,000 + vat payable on demand.

I give notice that we will allow 7 days grace from today until 20 September at 5.00pm for a time to negotiate settlement or we will then instruct collection proceedings in the form of a statutory demand and winding up proceedings against the company and collection from the shareholders personally. We will of course defend our agreements vehemently and without expense spared as a matter of principle.

I suggest you email me the name of the legal firm who is advising you on this so my legal department can furnish them with the appropriate and correct documentation for service.

David

Note that he refers to “non-disclosure of rather important points”. James said that when he asked David what this “non-disclosure” related to, he would not specify. What VC demands a £10,000 break-up fee without clarifying the grounds on which he’s ending the negotiations? Or what information has came to light?

From here, the emails get slightly more desperate as David realises James is not taking the bait as predicted. On 19 September, James received an email from a “Jim Flynn” of WD, advising that the break-up fee had been reduced to £2,500:

Dear Sirs

I have been asked to write to the company and shareholders with regards the liability under paragraph 5.4 of a Term Sheet issued by Walsh Doherty Capital and duly signed by the above named on behalf of the company [redacted].

Following various communication by email culminating on 13 September 2011 in which David Walsh, Director of Ventures of Walsh Doherty Capital allowed 7 days until 20 September 2011 to allow the above named to negotiate a settlement of our invoice issued under said paragraph 5.4 of the Term Sheet amounting to £10,000.

I have been asked by Mr Walsh as a gesture of goodwill to allow the company, [redacted] to pursue its normal course of business, a once and only final offer in full settlement of £ 2,500 (two thousand five hundred pounds). The above named need to confirm acceptance of the offer by 5pm on 20 September 2011 and pay said sum in full by 23 September 2011 in full and final settlement.

This offer will be withdrawn at 5pm on 20 September 2011 at which time we will serve by registered mail, process server and email a Statutory Demand for £10,000 under the relevant authority within Northern Ireland to the company and the shareholders and within 21 days of said date issue a Winding Up Petition against the company followed by Petition for Bankruptcy against the individual shareholders. Please do not ignore this notice. Should you have legal representation please forward their details to us so we may furnish them with the relevant paperwork.

Regards

Jim Flynn

Legal Services

SebDo Walsh Doherty Capital

Strange behaviour for a VC who is certain of the legality behind their action, surely? After receiving this, an inexperienced entrepreneur may have finally been intimidated into paying the full amount. James wasn’t inexperienced. At the advice of his lawyer, he ignored it.

Finally, on 21st September, he received a final email from Walsh:

[Names redacted].

Firstly,

following a meeting today and on  my personal recommendation we have decided not to proceed with a termination fee in this case on the grounds you fully disclosed all matters to us during our due diligence process. We confirm the decision to terminate talks was purely made on our risk analysis and as such our invoice is withdrawn.

Secondly,

on a personal level I am disappointed ( I’ll get over it) that we were unable to have any dialogue in the past three weeks and that many of my emails went unanswered.

I had and continue to have great regard for you both and for the concept that is [redacted] and I wish you nothing but the best in the future. I reiterate my offer to assist you in any way I can in achieving your goals through my contacts or calling on my own experience and this would be done purely as a hand of friendship and the desire to see you succeed.

My door is always open to you both.

Dave

So after accusing them of “non-disclosure” and being in breach of the infamous 5.4 clause, David that admits that there was no information at all. He does this without any explanation for WD’s actions: what made them think that James was guilty of “non-disclosure”? How can they just change their minds suddenly? It seems to me that David realised he couldn’t con James into handing over £10,000. With no legal grounds on which to pursue his claim (at least not without incriminating himself and being arrested), David gives up trying con the entrepreneur and moves on.

I’ve seen all the documentation and proof related to this case. All of it backs up James’s account of events. WalshDoherty’s website says it’s “closed for applications” and it’s Twitter account, @walshdoherty, is now private. It’s clear what’s happened here: a convicted fraudster masking himself as a VC, trying to fraudulently swindle money from entrepreneurs. If he was better at covering his tracks, it would be an elaborate hoax. Indeed, it has fooled Invest NI. Sources tell me that Walsh has been engaging with Invest NI as a “venture capitalist” And David Kirk has confirmed that his name was on the list of attendees due to attend the investor forum in October (mentioned at the start of this post). How is that a con artist can get a seat at that meeting but the body that represents tech entrepreneurs, Digital Circle, has to fight for one? How can an organisation like Invest NI not have more checks in place to weed out the David Walsh’s from the real investors with rmoney to invest? And how many startups have they pointed his way? Have any other startups fallen for the hoax and handed over £10,000? Not all will be as savvy as James. I know this because I was a young entrepreneur once. I would have been fooled. The Chief Executive of Invest NI was. Sources have also told me, although it’s as yet unconfirmed, that Invest NI staff had pointed startups and entrepreneurs to WalshDoherty as a potential investor.

I’ve heard since that Walsh is now operating under the name “Blackplanet VC”. The registered Twitter account linked to that particular outfit seems to have disappeared. @texmexgames and @shoutforit’s most recent Tweets are from November and December. If you know of any other entrepreneurs or business people who have had dealings with Walsh or any of his associates (although I think I suspect “Jim Flynn” and “Sebastian Doherty” are actually his aliases), please feel free to email me at lyra dot mckee at gmail dot com. All tips will be treated in confidence.

UPDATE 8:14am: David Walsh had seemingly disappeared underground since being rumbled in October by David Kirk but a source has just pointed me to this: Cannes Corporate Advisory. Allegedly a financial advisory firm, it boasts of the same “global network” Sebdo GIG/WD did. Tweeting as @cannesca, my source tells me that the person behind the website/Twitter account uses the same Paper.li account as WalshDoherty did, suggesting this is Walsh’s latest guise. Indeed, the WHOIS lookup for the site tells me that the domain was registered on 26 October; just 2 weeks after Kirk sent the link about his past to Invest NI and around the same time Tweets from the @Shoutforit and @texmexgames stop. Clearly, he needed a new disguise. With thanks to the tipster.

Update 23:17pm: Another article from the Preston Citizen says that Walsh had 6 months added to his original sentence after admitting to perjury and perverting the course of justice. Thanks to the eagle-eyed @alaninbelfast and the team over at Slugger O’Toole for tipping me off on this one.