TechCrunch editor and founder Michael Arrington has left the popular tech blog to become a partner in a new venture capital firm called CrunchFund. As the proprietor of TechCrunch, Arrington has long been the blogger-turned-kingmaker in the startup ecosystem. With CrunchFund, he has now proclaimed himself king and is looking to build his kingdom. We will see if that is possible now that the influential blog he founded is no longer under his control.
Arrington's departure is indicative of the crumbling state of AOL, which bought TechCrunch last year. Arrington's departure will have a ripple effect felt throughout both the entrepreneur and media communities.
This story is more than just about Arrington, TechCrunch, journalistic ethics and the venture capitalist boys' club. This is also a story of the crumbling of CEO Tim Armstrong's "new AOL."
An article in Fortune yesterday points out that Armstrong's "romantic" vision of AOL as the 21st century Disney and foremost digital premium content provider is crumbling. AOL bought the Huffington Post and TechCrunch, and continues to hire popular (and expensive) journalists to pump out copy that AOL can sell ads against. Outside of Arianna Huffington herself, Arrington is the biggest star that Armstrong had in the cupboard.
AOL is hemorrhaging money. The "AOL Way," as was revealed to Business Insider several months ago, is considered to be the epitome of the content farm approach to digital media. Armstrong is trying to reconcile premium content as represented through the Huffington Post and TechCrunch, with the content farm model.
Patch, AOL's effort to create a hyper-local news network, is the perfect example of this. AOL pumps money into Patch. It is real content created by real reporters (even if it is some what of a feudal enterprise). As Fortune notes, AOL is profitable without Patch. But the AOL Way is to pay well to pump out content. Arrington was a piece of that as much as Huffington or Patch.
Silicon Valley's "Pig Pile"
CrunchFund has a lot of investors. Arrington's primary partner will be Patrick Gallagher of VantagePoint Ventures. AOL Ventures is said to be the primary backer, but Sequoia Capital, Kleiner Perkins Caufield & Byers, Greylock Partners, Accel, Benchmark Capital and Andreesen Horowitz, Kevin Rose, Ron Conway and Yuri Milner are also invested.
That is a long list of VC firms and individuals that normally compete against each other. They are coming to pile on with Arrington because no one wants to be left on the outside of a popular venture that is getting a lot of press attention. Arrington as Iconoclast Venture Capitalist is good business.
Kara Swisher of AllThingsD calls it business as usual in Silicon Valley. With so many investors, no single person or firm has all that much money tied to the CrunchFund. Swisher talked to one unnamed investor who said, "It's not that much money, so who cares?"
Swisher says that CrunchFund is the classic Silicon Valley "pig pile." Everybody is getting in on it, Arrington is the popular and charismatic (erratic?) leader and the barrier to investment is low. Silicon Valley is a place where a company like Color, that offered nothing except a set of talented founders, got a $42 million investment. Giving Arrington $20 million to mine for the next billion-dollar valuation is almost a no-brainer in that environment. Whether he is still running TechCrunch or not.
Tech Blogging and Investing
To a certain extent, Arrington's philandering between investment and writing has given the tech blogging community a bit of a bad name. In the New York Times coverage of Arrington's new venture yesterday, reporter Claire Cain Miller stated:
"The $20 million CrunchFund is the latest example of Mr. Arrington's casting aside one of traditional journalism's cardinal rules - that reporters should avoid conflicts of interest by maintaining distance from the people, organizations and issues they cover - and raises questions about whether industry bloggers are journalists."
[Disclosure: ReadWriteWeb is syndicated by the New York Times]
TechCrunch had been silent until earlier today, when writer Paul Carr posted a clarification of TechCrunch's relationship to the CrunchFund. The gist:
"To be absolutely clear about this: the CrunchFund is Mike and Tim's baby. It has nothing to do with anyone else at TechCrunch. The first time most staffers heard about the fund, and AOL's involvement in it, was when it was announced in the Times. Those of us who did have prior knowledge of the fund urged that it be renamed to avoid the appearance of conflict. In fairness to Mike, he took the concerns to heart and - I gather - discussed them at length with other parties in the fund, including Tim Armstrong. Ultimately, though, the name remained unchanged."Some of the best working journalists in the U.S. work in tech blogging. Swisher is a great example. Swisher takes pains to disclose that she is married to a Google employee and does not benefit monetarily from the arrangement. TechCrunch's MG Siegler is great at breaking stories. These are hard working journalists that inform the public and technology community of what is happening in the space.
Arrington is a different matter because of the amount of power he held as the primary voice of TechCrunch. Edward Wasserman, the Knight professor of journalism ethics at Washington and Lee University told the New York Times; "If it's helping a group of investors make decisions or advancing one's own portfolio, you're not really in the journalism business. You're in the private enrichment business."
The fact that the Arrington has started the CrunchFund shows that he is in the "private enrichment business." Swisher takes umbrage to how Arrington has positioned himself as the editor of a large news operation while also being a backdoor arbiter of startups fortunes through the publication and now his venture fund.
"In fact, the creation of a $20 million investment kitty that Arrington has dubbed CrunchFund is simply the formalization of a long-standing arrangement that has already been going on since he founded his popular tech blog.
That is to say, in which the basic standards of journalism are first warped by calling it newfangled truth-telling and then endlessly corroded by using a wily and unusually aggressive combination of favors and threats to extract, from start-ups and VCs in need of press, both exclusive access and information."