TechCrunch’s Arrington resigns to start VC fund

TechCrunch’s Michael Arrington has left the popular blog to start a venture capital fund aimed at investing in tech startups. Arrington has partnered with TechCrunch’s parent company AOL to raise US$20-million for the new company, CrunchFund, with AOL investing a reported US$10-million in the venture.

According to The Wall Street Journal, the project is also backed by “several” other “venture-capital firms”. Arrington gave forewarning of such a move back in April of this year, stating that “in a few months, there’s a very good chance that I’ll be a direct or indirect investor in a lot of the new startups in Silicon Valley.”

Arrington is a former Silicon Valley lawyer. He started TechCrunch in 2005 and rapidly turned it into one of the most-read blogs in the tech world. The site received 3.6-million visitors in July, according to tracking firm comScore.

CrunchFund will invest in tech startups, including some that Arrington and his staff have written about. Arrington’s previous investment activities have raised ethical questions about his journalistic integrity and conflict of interest. Arrington addressed such criticism by disclosing all his investments on TechCrunch earlier this year.

AOL, which reportedly paid US$30-million for TechCrunch last year, prohibits reporters at its media sites, including those at The Huffington Post, from investing in the companies they cover, according to the New York Times. An exception, however, was made for Arrington.

“TechCrunch is a different property and they have different standards. We have a traditional understanding of journalism with the exception of TechCrunch, which is different but is transparent about it,” said Tim Armstrong, chief executive of AOL.

“I don’t claim to be a journalist,” Arrington said to the Times, “I hold myself to higher standards of transparency and disclosure.”

“Though rare, AOL’s exception to the rule for Mr. Arrington is not unprecedented. Other niche blogs, including the Motley Fool, which is about finance, and GigaOm, also about tech, allow their writers to invest in companies covered on the sites,” says the Times

CrunchFund will generally invest between US$25 000 and US$500 000 in young startups. The fund, which is fully subscribed and not accepting new investors, will invest only alongside other venture capitalists, Arrington said to the New York Times. Patrick Gallagher, an investor at VantagePoint Venture Partners and long time friend of Arrington will also play a role in running in the fund.

According to a report by The Next Web, Arrington’s position at TechCrunch has been relegated to “unpaid blogger” following a tweet from New York Times’ David Carr. Some reports, however, say he will stay on as founding editor.

There was also speculation that the relegation of Arrington to occasional blogger because his position as editor and investor diverted attention away from Huffington Post founder Ariana Huffington’s expensive hiring binge and earnest bid for mainstream media credibility. Huffington has hired dozens of top lawyers and journalists to her site in an attempt to shake off her site’s blog label.

According to the Journal, editorial duties for the site will now fall to co-editor Erick Schonfeld, while the search for a new editor gets on the way.

Silicon Valley insider Tom Foremski believes that the diminished role could impact on Arrington’s effectiveness as an investor.

“Having an influential editor as an investor makes sense and could save startups large amounts of money in PR costs — as much as US$240 000 a year,” adding that “Arrington will have to convince startups that he brings other benefits other than access to Techcrunch’s massive readership.”

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