Michael Arrington at the Naked Truth event in Seattle. (Randy Stewart photo)

Michael Arrington, the flame-throwing founder and co-editor of TechCrunch, is starting his own venture capital fund. The $20 million CrunchFund includes backing from AOL — which purchased TechCrunch last year — as well as venture capitalists at firms such as Kleiner Perkins Caufield & Byers, Sequoia Capital and Greylock Partners. TechCrunch covers many of those venture capital firms as well as their portfolio companies, which leads The New York Times to note that it is the “latest example of Mr. Arrington’s casting aside one of traditional journalism’s cardinal rules.”

Arrington says he’s not a journalist, and therefore should not be held to the same rules that many technology writers at media companies adhere to. He also notes that he publicly discloses any potential conflicts.

Arrington took heat early in his career for bankrolling companies that TechCrunch covered, but the practice was curtailed in 2009, reports Dan Primack at PEHub.com. However, five months ago, Arrington updated his investment policy to disclose that he was once again bankrolling startups and investing directly in venture capital firms.

In his typical tone, Arrington wrote:

“Other tech press will make hay out of this because they don’t like the fact that we are, simply, a lot better than them. That’s fine, but when you read their coverage remember that they’re our direct competitors, even though they won’t “disclose” that particular conflict of interest. Luckily they don’t get to make the rules we operate under. We do, and you, as readers, can choose to accept those rules and read, or not and leave.”

The technology press has already piled on Arrington. In a story titled “AOL: You’ve Got Conflicts,” Gizmodo writes that Arrington is “notorious for trading access for coverage.”

Since many of you will wonder what GeekWire’s position is on this topic, let me be clear. We do not directly invest in the companies we cover. I say “directly” because we may have some cash tied up in a mutual fund somewhere that has some Microsoft, Amazon or Expedia stock. But, frankly, I don’t even know. I am too busy building GeekWire to think about investing in individual stocks, let alone  startups.

When there is a potential conflict in our reporting, we disclose it. Arrington and his reporters also disclose the technology writer’s conflicts, including a recent piece in which Arrington’s executive assistant was asked to do certain tasks submitted through Zaarly. (One of Arrington’s recent investments).

AOL is making an exception to its policies to accommodate Arrington, with AOL CEO Tim Armstrong telling The Times that TechCrunch is a “different property.”

UPDATE: According to a report by Business Insider, Arrington is stepping down from his editorial duties at TechCrunch. He will still offer occasional unpaid blog posts to TechCrunch as long as they fall within the company’s blogging guidelines, but he will no longer report to AOL’s Arianna Huffington. That’s a bit of a change from what was first reported by The New York Times and other media outlets, which suggested that Arrington would have a more formal role at TechCrunch and still report to Huffington. So, did something change in the past 12 hours or did the Times just miss the mark with its story? Anyway, it seems that this is a more sound policy. But, as Henry Blodget notes, it is an end of an era if Arrington truly is moving on from TechCrunch.

What do you think? Is TechCrunch any different than other online media properties? Should journalists/bloggers/writers/reporters/editors be able to invest in the companies that they cover as long as they disclose it? Or is this an age-old rule of journalism that should not be broken?

Comments

  • http://GeekAtSea.com/?utm_source=disqus&utm_medium=display_name&utm_campaign=disqus_display Kirill Zubovsky

    So what if Arrington’s disclosure + coverage favorites one startup over another? Life isn’t fair, but that’s what makes it interesting. Step 1, get on a good side of Michael Arrington. If that doesn’t work, Step 2 is to find somebody more influential. Am I wrong, again?

  • http://blog.calbucci.com/ Marcelo Calbucci

    The problem is never investing or not investing, but disclosing investment or not disclosing. I’m sure lots of journalists get nice gifts, invitations to exclusive parties and events, and have many other conflicts who are never disclosed.

    Plus, I can’t but think Arrington becoming an active investor is good for startups.

  • Anonymous

    Hall Ya! Investment is good..disclose or not…follow legal guidelines..

  • Christine Chen Velazquez

    This is a loaded question, Mr. Cook, and a great one.  I counter with: I think the line between journalism and business has been moving drastically for several years now.  WRT that line, what was once shocking is often no longer, and what was once unthinkable can be commonplace.  None of this makes it “right”, but what is “wrong”… traditional media/online orgs trained as such… imposing furloughs and engaged in dogfights daily to survive with ethics intact.

  • http://eyejot.com/users/davidg davidgeller

    Ok – I’ll take the bait since he’s somewhat of a public figure in the tech startup community. But, Christine is right about this being a “loaded question.”

    Mike’s money is as green as anyone else’s provided the startup knows what they’re getting into. It’s possible he could add some value having written about so many startups and swimming in the Bay Area startup pool. He knows lots of people (companies, VC firms, press folks, etc.). If the startup is looking for connections and they can forge a close bond with Mike then both parties could benefit.

    However, I’d question his ability to add technical or strategic advice to a high-tech oriented startup. I’m not aware of him having specific skills, aside from his training as an attorney, that would benefit an Internet startup and I’ve questioned his wisdom many times reading his often acerbic and confrontational pieces in TechCrunch and following his “tablet” debacle. The whole Crunchpad episode shows that he’s willing to let passion overrule common sense and logic. It was a ridiculously unrealistic product pursuit (on so many levels) and he also failed, according to his own disclosures, to structure his business relationships with proper documentation and contracts.

    The “public” Mike seems brash. I’m careful not to proclaim him as such because I’ve only met him once. Maybe he’s not really that way, most of the time. But, if he is, then that’s potentially a major distraction for a group of people that need to be focused on building a product and company and discovering their customer base.

    If he’s offering to be a minority investor without a board seat then I’d say invite him to the party! Otherwise, startups don’t need drama queens.

    • Victor

      Being a lawyer and journalist doesn’t make Mike a lesser VC. In case we forget, one famous journalist turned into one of the most successful VCs of all-time. One Michael Moritz of Sequoia, the same follow that funded Google, Cisco, Paypal, Zappos, Youtube and some duds along the way. VCs are judged based on their results, and it is far too early to tell if Arrington will be successful. I would rather have an open mind about him.

  • Dave

    If you rely on TechCrunch for news or something close to news, then the fund should really bother you. If you think of TechCrunch as People or US Weekly magazine for startups, then it shouldn’t. For me, I’ll continue to read TechCrunch but put little stock in the opinion part of the site. Arrington has never claimed to be neutral but managing a fund will really put his views in a different light going forward.

  • http://blog.findwell.com Kevin Lisota

    If he is not a journalist, then what is he?

    I wonder if you’ll see other VC firms trying to align themselves with tech news sites to follow suit? This obviously compromises their ability to gain favorable coverage on TC for their own portfolio companies if they are not in his “in” group of VCs.

    At a minimum, this makes his reporting less interesting, as there will be a family of companies that he is unwilling or unable to criticize openly, lest it affect his personal investments or those of his fund partners.

    Journalistic ideals aside, does he not also have a responsiblity to his fund investors and companies? (Does a VC fund manager have fiduciary responsibilities?) One could argue that he bears a responsibility to actively prevent criticism and negative reporting on TC for his portfolio companies, no matter who is reporting on it, since he still bears editorial responsiblity there.

  • Jaggyjaggyjag

    Why isn’t there a “I couldn’t care less about what Arrington does” button?

  • Guest

    I really don’t see the problem as long as he discloses situations where he has an ownership position. Bias, especially among technology “journalists”, is rampant already.

  • http://blog.CascadeSoft.net @CascadeRam

    I think there is a clear conflict of interests here.

    I don’t necessarily disagree with other commenters who say that other journalists have other conflicts of interests (e.g. Marcelo’s comment on “invitations to exclusive parties and events”)

    However, imo this is a much bigger conflict of interests and even if it weren’t bigger, an alleged ethical lapse on the part of one journalist cannot justify blatant ethical lapses on the part of other journalists.

    Ultimately, investing in startups will adversely impact his credibility.

  • Guest

    Journalists should be REQUIRED to invest in the startups about which they crow. If it were mandatory for TechCrunch to have a money stake in the articles they publish, there would be a lot fewer nonsense articles about concepts that will go nowhere.

    Seriously, journalists: put up (and disclose, obviously) or shut up.

  • Ray Burt

    NNNNNNNNNNNNNNOOOOOOOOOOOOOOO

  • http://blog.daryn.net daryn

    I consider journalism a profession, and while Mike is most definitely a blogger and a writer, he’s not a journalist. Never has been, and never will/never wants to be.

    Disclosure is great, so is remaining neutral, but ultimately we’ve evolved past a world where there were single news sources, and their integrity was essential to fair reporting. If Mike and TechCrunch are playing favorites or being deceptive, readers have plenty of other choices out there (Go Geekwire!). 

  • http://twitter.com/kenmoss ken moss

    Full disclosure is a minimum bar.  I could imagine that getting awkward if/when he’s in a situation where he or the company doesn’t want to disclose yet.  For instance, what if he’s writing about a cool new beta that’s about to launch, and he’s still doing due diligence about investing.  Too soon to disclose?  But not too soon to hype the company?  Or should he invest first and then hype the company so the price doesn’t creep up on him?

    Beyond just disclosure — I think he needs to exclude himself from writing about companies he’s invested in — and also their competitors.  That can get very dicey in our industry where companies are constantly pivoting into other’s spaces.

    He certainly has the right to do it — but we, as readers, have the right to stop reading his work if he doesn’t approach this with the utmost of journalist integrity.

  • http://twitter.com/robelalemu Robel Alemu

    I believe most TC readers are smart enough to see the two
    sides of a story, if there is a question on TC reporting.

    I understand most startups pitch TC for coverage, not
    everyone gets a space ofcource. But it gives TC a detailed count on who is
    doing what in the industry, which comes in handy when Mike considers investing.
    Good or Bad depends on how you look at it.

    While there may not be an explicit favoritism on coverage, I
    wonder if competing companies (to Mike’s portfolio of companies) feel comfortable
    reaching out to TC to share their innovation + details.

  • Anonymous

    The question about ethics and disclosure is certainly important and should get discussed.  The potential for “self dealing” is pretty high and Arrington isn’t exactly known as an unbiased source.

    A more important question to me is “What makes Michael a good VC?”.  Frankly, his track record on creating products is pretty mixed.  Anyone remember the CrunchPad?  Sure people can say he had a great idea before Apple got the iPad out but ideas are a dime a dozen and usually on discount.  If you followed the crunchpad saga, it looks like a classic story of ineptitude and overreach.  This does not, in my humble opinion, speak well for Michael’s business chops.

    So, what does investment from Arrington get you?  A somewhat suspect PR megaphone? I’ve been in startups and money that doesn’t come with great advice and insight is actually a negative.  It’s like a high powered car with faulty steering. You could easily wind up in the ditch.

  • Dave

    Arrington has reportedly stepped down as an editor, now will be an unpaid columnist like many others. Probably a commentary on the lack of reliability of TechCrunch that as of right no there are no articles on TechCrunch about either the fund or the resignation, while Arrington cooperated with an NY Times story.  It is a fun read, but largely People magazine/US Weekly for technology not the definitive, reliable news source TechCrunch often tries to position itself as.

    • John Cook

      Dave. Really strange how this is playing out. I updated the post above, and wonder if pressures mounted on AOL to move Arrington off the payroll and out of editorial duties at TechCrunch.

      And to your point about the lack of coverage about the transition on TechCrunch, that is pretty interesting. When I was at the Seattle P-I, the editors put one of the best reporters on the business staff to cover the closure of the newspaper. It was a tough assignment for Dan Richman, but his reporting of that story was top notch. I wonder why TechCrunch has chosen not to cover the news story.

      But, as Arrington says, no one makes the rules by which they operate. True enough. But I’d still like to hear more from them on what’s going on.

      • http://blog.findwell.com/ Kevin Lisota

        Wow, AOL is saying that he “no longer works for AOL in any capacity,” in an update to the BusinessInsider article.

        How can there not be a post on TC about this right now? Is Arrington being silenced or edited for a goodbye post? Very out of character. You’d expect a blustery post bidding farewell, at a minimum, or at least have someone over there report on it!

        • John Cook

          I think this may be unfolding in real time. Media companies, at least in my experience, are pretty bad at media relations or telling their own story. The P-I was good at it because there were some bad-ass journalists there who always put the reader first.

          I, however, once worked at a newspaper that refused to cover their own layoffs and, then, threatened to discipline/fire people if they mentioned anything about it. Really weird stuff for a newspaper, especially one that relies on people telling them things. In retrospect, I should have quit then.

      • Dave

        Complete lack of planning, constantly changing and incoherent messaging, lack of forethought as to how the world would react, then backpedaling and rapidly flip-flopping/changing plans seems to define AOL’s approach to the world over the past 5 years so this probably should not be a surprise. It is also trying to have a significant news business, or something close to a news business, but is not run by anyone with a real journalistic background. Some journalistic ideals may be silly legacy concepts, but things like concerns over conflicts of interest exist for a reason–namely the market expects minimal conflicts to keep news providers honest.

        Good point re Seattle P-I wind down reporting. I’d say the same focus was brought by the Wall Street Journal when it was sold a few years ago, although they were in a strange spot because higher ups kept leaking to the NY Times not the WSJ.

  • John Cook

    What a mess. Here’s the latest from the NY Times:

    “Michael’s role has changed,” said Maureen Sullivan, an AOL spokeswoman. “He now works within AOL Ventures. He’s becoming a professional investor. He is no longer involved in editorial.”

    “It didn’t change overnight,” Ms. Sullivan added. “It’s just very important to be really clear about the exact specifics.” A

    A spokesperson for Huffington Post put it more bluntly, saying that while Arrington will write an occasional blog post “his editorial role is over.”

    http://bits.blogs.nytimes.com/2011/09/02/aol-says-arrington-no-longer-works-at-techcrunch/

    UPDATE: Wow, in a blistering post, TechCrunch’s Paul Carr unleashes on AOL and Tim Armstrong. He writes:

    Can we really hope that other media outlets will continue to support our campaigns against the wrongdoing of tech companies, or will those campaigns now be so bogged down in ethics disclosures that the message is muted to the point of impotence? Can we possibly expect new editorial hires not to at least check themselves before they write something negative about a CrunchFund company, lest it upset their ultimate AOL paymasters? And is there even a fantasy universe in which our competitors and critics won’t take every opportunity to remind the world of our brand’s direct financial stake in many of the companies we cover?

    http://techcrunch.com/2011/09/02/crunchfund/

    • Dave

      The link to the Paul Carr post on TechCrunch is a great one and one everyone with any interest in this topic, technology blogging or blogging that is or is close to news reporting should read. Very firey, but at heart well done.

  • Ray Burt

    Arrington resigns as managing editor of TechCrunch…right decision: http://www.i4u.com/related_articles/06dV6CX0gD6rb 

  • Ray Burt

    Arrington resigns as managing editor of TechCrunch…right decision: http://www.i4u.com/related_articles/06dV6CX0gD6rb 

  • Dave

    What happened to the rest of the discussion John? Entries seem to have disappeared.

    • http://geekwire.com Todd Bishop

      Dave, the missing comments will be back … there was a Disqus outage earlier today and our system is in the process of resynching the comments that were made in wordpress during the outage. 

  • Guest

    The Techcrunch brand took a major hit today.  It may not recover. 

    Honestly, it started losing it’s value for many readers about a year ago.

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