Three months after getting slammed by BusinessWeek's Jon Fine, TechCrunch's Marshall Kirkpatrick, and a gazillion bloggers, PayPerPost is crying all the way to bank. The Orlando-based startup, which matches advertisers with bloggers willing to write about their products for $2 and up per post, will announce on Tuesday that it has netted $3 million in venture capital. The Series A round was led by Inflexion Partners, with Village Ventures and Draper Fisher Jurvetson participating.

"PayPerPost is poised to redefine the concept of advertising as we know it," founder and CEO Ted Murphy says in the press release. "We intend to create the world's largest network of consumer content creators and show advertisers how to utilize the creativity and voice of the masses. It's marketing by the people, for the people."

So, why did it get slammed? Because Murphy is stretching this "by the people, for the people" thing. Bloggers are getting paid to write about products without having to disclose that payment, which by any measure is deceptive. What's more, advertisers can--and usually do--specify that those bloggers must write positive comments on the product. As Jon notes in his column, headlined "Polluting the Blogosphere," "shilling without disclosure is a bad idea."

In a TalkCrunch podcast with TechCrunch's Mike Arrington and me, Murphy and DFJ partner Josh Stein make a valiant effort to defend their business model--which they claim has already attracted tens of thousands of advertisers and produced revenue of well over $100,000. The podcast lets them speak for themselves, but it's clear they think "the market" will sort everything out, so a requirement for disclosure isn't needed.

Maybe, maybe not. I don't know if PayPerPost will run into the same kind of trouble that Procter & Gamble's "word-of-mouth marketing" unit Tremor has for lack of disclosure. But I suspect the market, which includes blog readers as well as advertisers that don't want to be branded as deceptive, ultimately will demand some kind of transparency. And with the intensely interactive nature of blogs, they're in more of a position to call out blogs--and advertisers--that don't provide it.

Mike has more on TechCrunch.

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