AOL: Now a Venture Capitalist?

Arrington fund actually minor, but brings journalistic arm into question

   

What is the strategy of AOL (NYSE:AOL)? Well, it seems to change frequently. The latest vision: It’s to build a 21st century content destination.

To this end, AOL has spent hundreds of millions for top-notch sites like Techcrunch and Huffington Post. But so far, the results have been underwhelming. In fact, AOL’s stock price has plunged 38% for 2011.

So now it looks like Tim Armstrong is tweaking the vision once again. Now AOL is going to dabble in the venture capital industry. Highly connected Techcrunch editor/blogger Michael Arrington has launched a $20 million fund (called the “CrunchFund”). Besides getting AOL as the lead investor, he also was able to snag backing from Kleiner Perkins, Accel Partners, Sequoia Capital, Marc Andreessen, Yuri Milner and Ron Conway.

Actually, in the VC world, this fund is quite small. So unless Arrington finds the next Google (NASDAQ:GOOG) or Microsoft (NASDAQ:MSFT), it seems unlikely that the investment returns will be material for AOL. Even with a home run, it likely will take five to 10 years to get a windfall.

But something else is interesting about the CrunchFund: It is a sign that AOL’s journalistic vision is somewhat dicey. How can AOL provide non-conflicted coverage of startups when it also is a VC investor? Interestingly enough, it looks like Arrington will remain an unpaid blogger for Techcrunch.

But even this is somewhat unclear. Keep in mind that Arrington told the New York Times that he had “no idea” about his status.

So perhaps in the Brave New world of social media, the principles of journalism are inevitably changing? And maybe AOL is at the forefront of this change? Perhaps so. Besides, the Arrington saga could be another clever ploy to engender more exposure for Techcrunch. Yes, the Twitter-sphere has seen torrents of comments.

But does it really matter? Again, the fact is that AOL’s content strategy has not been producing results. And based on the latest quarterly report — which saw deteriorating sales and big losses from Patch — it seems like there will be little traction in the future.

Tom Taulli is the author of various books, including “All About Commodities.” He does not own a position in any of the stocks named here.


Article printed from InvestorPlace Media, http://investorplace.com/2011/09/aol-venture-capital-arrington/.

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