AOL Inc. (AOL) invested in a new fund for technology startups to be led by Michael Arrington, who will no longer be top editor of AOL’s TechCrunch blog, which he founded, said two people familiar with the plan.
Arrington’s fund has raised $20 million from AOL and venture capital firms including Sequoia Capital, according to the people, who requested anonymity because the plans have not been made public. He will remain employed under AOL’s investment arm, while the company plans to find a new editor for TechCrunch, said the people.
AOL, the Internet company that’s struggling to halt a sales slide, bought TechCrunch in September 2010 as part of a broader effort to add publications and writers to generate advertising revenue. Moving its founder into a new role as investor will diminish the acquisition’s value, said Laura Martin, senior media and Internet analyst at Needham & Co.
“Arrington’s brand value is as an independent assessor and introducer of promising new companies and technologies,” said Martin, who is based in Pasadena, California. “By starting a fund that invests in some and not in others, the credibility of every assessment he does is questionable.” Martin has a “buy” rating on AOL and doesn’t own the stock.
Mark Dempster, a spokesman for Sequoia, confirmed his company’s investment in the fund. Marc Andreessen and Ben Horowitz also invested on their own behalf and not on the behalf of their venture capital firm, Andreessen Horowitz, said Margit Wennmachers, a partner at the firm. Bloomberg LP, parent of Bloomberg News, is an investor in Andreessen Horowitz.
AOL pushed to be the sole investor in the new fund, according to two people familiar with the talks. Arrington insisted on taking money from outside investors, said the people. AOL invested less than $10 million, one person said.
Maureen Sullivan, a spokeswoman for New York-based AOL, did not respond to requests for comment. Arrington didn’t respond to requests for comment.
AOL fell 69 cents, or 4.5 percent, to $14.50 at 4 p.m. in New York Stock Exchange trading. The stock has fallen 39 percent this year.
TechCrunch was founded in 2005 by Arrington, who created the blog from his home in Atherton, California, to share news about emerging Internet companies. In addition to publishing an assortment of technology blogs, TechCrunch hosts conferences.
After the acquisition, Arrington said he planned to stay at AOL for at least three years. AOL paid $25 million for TechCrunch, people familiar with the matter said at the time.