Michael Arrington, whose influential TechCrunch blog covers Silicon Valley, has started a venture capital fund to invest in start-ups, including some that he and his staff write about.
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.
Like most news providers, AOL, which reportedly paid $30 million to acquire TechCrunch last year, prohibits reporters at its media sites, including those at The Huffington Post, from investing in the companies they cover.
But AOL has made an exception for Mr. Arrington, who has been the site’s editor. He will take a backseat role at TechCrunch, which is hiring a new managing editor. He will continue to report to Arianna Huffington, who runs AOL’s media properties.
“TechCrunch is a different property and they have different standards,” Tim Armstrong, chief executive of AOL, said in an interview.
“We have a traditional understanding of journalism with the exception of TechCrunch, which is different but is transparent about it.” Not only has AOL approved the fund, it is financing it. AOL invested about $10 million in the CrunchFund, which will operate separately from AOL Ventures, the venture capital fund that AOL brought back to life last year.
Mr. Arrington said that his investments would never influence TechCrunch’s coverage, and that he would continue to disclose that he had invested in start-ups across the site, including on each post about the start-ups.
The fund’s contract with its investors says that Mr. Arrington can continue to publish critical or negative posts or disclose confidential information about the investors or the companies in which they have invested.
“I don’t claim to be a journalist,” Mr. Arrington said, though he breaks news and writes prolifically. “I hold myself to higher standards of transparency and disclosure.”
He argues that his investments would produce less of a conflict of interest than the other conflicts that all journalists have as human beings, because their views are shaped by friendships, romances and personal opinions.
“Friendships and marriage are far more potent than financial conflicts,” he said. “I firmly believe that the reason we are a popular site is because we have built reader trust, and the only way to build reader trust is not to trick them. That’s the most important thing to me.”
The arrangement immediately raised ethical questions. “Journalists write with the principle of public illumination,” said Edward Wasserman, the Knight professor of journalism ethics at Washington and Lee University. “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.”
Many of the top firms in venture capital, which Mr. Arrington also covers on TechCrunch — including Sequoia Capital, Kleiner Perkins Caufield & Byers and Greylock Partners — have invested in Mr. Arrington’s fund. Accel, Benchmark Capital and Andreessen Horowitz have also invested.
The CrunchFund will generally invest $25,000 to $500,000 in young start-ups. The fund, which is fully subscribed and not accepting new investors, will invest only alongside other venture capitalists, Mr. Arrington said. He will run the fund along with Patrick Gallagher, his college friend and an investor at VantagePoint Venture Partners.
Mr. Arrington, a former Silicon Valley lawyer, started TechCrunch in 2005 and rapidly turned it into one of the most-read blogs in the tech world. It had 3.6 million visitors in July, according to comScore.
Mr. Arrington is well-connected in Silicon Valley. He runs TechCrunch Disrupt, a business conference; provides entrepreneurs with advice, introductions to investors and sometimes a couch to sleep on; and counts venture capitalists as close friends.
The line between blogging and investing had already been blurry for Mr. Arrington. On TechCrunch, he wrote the first article about Zaarly, for buying services and goods from people nearby, which was a boon for the start-up, said Bo Fishback, its founder. “Every time you get crunched,” he said, using slang for being covered on TechCrunch, “there’s a good bump in traffic.”
Then Mr. Arrington introduced Mr. Fishback to Ron Conway, a prominent Silicon Valley investor, who gave $50,000 to Zaarly. Mr. Arrington eventually invested in Zaarly, too. In coverage of Zaarly, TechCrunch writers have noted that Mr. Arrington is an investor and they have written at least one negative post on the company.
His network is what feeds TechCrunch’s scoops. It will also make him a savvy investor, his financiers said, because he can scout start-ups and introduce entrepreneurs to engineers and other investors. “His value is with his Rolodex,” said Mr. Conway, who contributed money to the CrunchFund.
Reporting on tech companies is good experience for investing in them because reporters learn the right questions to ask, said Roelof Botha, a partner at Sequoia, which invested in the CrunchFund. Michael Moritz, Sequoia’s star investor, was formerly a journalist with Time Inc.
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.
Mr. Arrington has also invested in start-ups previously, though he stopped in 2009 because, he wrote at the time, it had become “a weak point that competitors and disgruntled entrepreneurs use to attack our credibility.”
Readers have no way of knowing, for example, whether TechCrunch does not cover a company because Mr. Arrington has invested in a competitor. But Professor Wasserman said that in a changing media landscape, the insight from figures like Mr. Arrington might be worth the gamble.
“Is the public on balance better off having access to this guy’s thinking, all things considered, even if he’s got his own agenda?” he asked. “If I were active in the market and this guy has a proven track record, then sure, I’d want to read it.”