TechCrunch and CrunchFund: The Conflict-of-Interest Controversy

9/6/11Follow @wroush

Is TechCrunch coming apart at the seams, or is it simply going through a leadership transition? Are we witnessing the breakdown of an ill-conceived marriage, or do the events of the last few days amount to publicity ploy—a Britney Spears-style public meltdown, cynically designed to keep the media spotlight fixed in the company’s direction ahead of its big Disrupt conference next week?

All of these interpretations, and many more, are on offer around the Web as debate continues over last week’s news that Michael Arrington, the contentious and controversial founder of the San Francisco-based tech news outlet, is starting a venture capital fund. Very little about this story is clear, starting with where Arrington actually works now. The latest word from AOL, which acquired TechCrunch last fall, seems to be that Arrington no longer has an editorial role at the publication he founded in 2005, and that he’s now employed by AOL’s venture capital division. But even that much seems uncertain, as there are reports that Arrington will still write for TechCrunch (where writers are allowed to post with no oversight from editors), and Arrington himself continues to insist, in comments to the New York Times, that “I am TechCrunch and TechCrunch is me.” Today Arrington wrote that “my employment relationship with TechCrunch and AOL is not the core issue” and called on AOL to either grant TechCrunch “complete editorial independence” or sell the company back to its original shareholders.

This isn’t some minor Silicon Valley squabble—it’s a bona fide media brawl that has pulled in big names from the New York Times, Dow Jones, Fortune, and other major publications. But in case you didn’t spend your whole Labor Day weekend following the saga, I thought I’d try to distill it into a few concise links, in more or less chronological order:

—Back in March 2009, Arrington, a longtime angel investor, declared that he would sell off his technology investments. Despite his efforts at disclosure and transparency, Arrington said, the fact that he invested in technology companies was “a weak point that competitors and disgruntled entrepreneurs use to attack our credibility.” (Note: for some reason, Arrington’s 2009 post on this decision is currently attributed to TechCrunch writer Peter Ha.)

—This April, Arrington updated his investment policy, saying that he was getting back into the game. He acknowledged that he had invested in Shawn Fanning’s latest startup, Supyo, and Kevin Rose’s new startup, Milk, and said he had become a limited partner at Benchmark Capital and Jeff Clavier’s Softtech VC.

—Last Thursday, Fortune’s Dan Primack was one of the first to report that Arrington and Patrick Gallagher of VantagePoint Venture Partners were assembling a $20 million venture fund, to be called CrunchFund, with AOL as the main limited partner. Primack said the fund had raised smaller investments from Sequioa Capital, Greylock Partners, and Kleiner Perkins Caufield & Byers.

—Reporters at AOL media sites—including the Huffington Post, which oversees TechCrunch—are prohibited from investing in the companies they cover. But in an interview Thursday, AOL CEO Tim Armstrong told Claire Cain Miller of the New York Times that the company had made an exception for Arrington. “TechCrunch is a different property and they have different standards,” Armstrong said. “We have a traditional understanding of journalism with the exception of TechCrunch, which is different but is transparent about it.” Armstrong confirmed in the Times article that AOL had put about $10 million into CrunchFund, which he said would operate separately from the firm’s existing venture operation, AOL Ventures. And the article made it clear that CrunchFund’s pitch to its own investors was that Arrington’s TechCrunch credentials would give him access to choice “deal flow,” Silicon Valley jargon for the stream of business plans submitted by entrepreneurs seeking funding. “His value is with his Rolodex,” ubiquitous angel investor Ron Conway told Miller.

—That’s roughly when all heck broke loose, as media heavyweights went on record with their scorn for Arrington’s move and AOL’s decision to support it. Kara Swisher of AllThingsD, which is owned by Dow Jones, praised Arrington as a “talented writer” with a “unique voice,” but she called the CrunchFund arrangement “hopelessly corrupt” since it could give TechCrunch additional leverage over startups in need of coverage. In a key passage, Swisher quoted from an interview with Greylock’s Reid Hoffman, who seemed to think that TechCrunch and CrunchFund were effectively interchangeable: “Techcrunch will get some real deal flow … Next Page »

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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