

An open letter to Mike Arrington: Please stop investing in startups - danshapiro
http://www.danshapiro.com/blog/2011/05/open-letter-to-mike-arrington-please-stop-investing-in-startups/

======
nextparadigms
Does anyone know if he has stock in Facebook? Or MG? I've watched them post
about every single increase in Facebook valuation from $20 billion to $80
billion.

"Facebook now at $20 bn..." "Facebook now at $25 bn..." ......... "Facebook
now at $75 bn..." "Facebook now at $80 bn..."

I don't think I'm exaggerating when I say they made a post every time
Facebook's valuation jumped 5 bn. I thought it was pretty excessive and
dubious. I was wondering if it wasn't actually their posts which lead to the
next $5 bn increment every other week.

It gave investors the idea that Facebook's valuation will keep rising. It
created a loop. I think $80 bn valuation (or $70 as it is now) is way too
inflated for the kind of revenues Facebook is making, and I think some of the
investors are realizing this and are starting to cash out now before all the
others figure it out.

~~~
nl
As a general rule, they are reporting investments made at those valuations.

Given the Techcrunch audience and the importance of Facebook in Silicon Valley
I think that reporting new investments is reasonable, and when the valuations
are as high as Facebook's are that will be news too.

I also think reporting on secondary-market transactions is important. There
are interesting legal issues surrounding them, and how much people are
prepared to pay for shares is instructive, too (especially since some
secondary market investors probably have more financial knowledge of Facebook
than you or I).

------
staunch
TechCrunch has always been Arrington's blog above all else. He uses it to help
his friends and defeat his enemies. Ask Jason Calacanis what it's like when
he's your friend (lots of easy coverage) and what it's like when he's your
enemy (LAUNCH conf boycott).

Any additional bias he may have because of investments won't be detectable in
the mass of existing ones he already exhibits.

~~~
alain94040
Exactly. Once you have watched how the insider game is played in Silicon
Valley, being an investor is the least of your conflicts. There are so many
weird relationships going on, it's almost like real life. I'm friends with X,
Z owes me a favor, etc. None of that stuff is disclosed, because it's just how
the world works.

Don't get upset about the 5% of cases where MA has a direct conflict or
interest, use your own judgment and filters 100% of the time. One of the key
values of reading TC is that it offers strong opinions. If you just want to
read bland press releases, I can point you elsewhere.

------
prpon
TechCrunch had never been an impartial reporter of startup or tech news. Their
coverage of startups even before Mike Arrington started investing is based on
how connected the startup is with VCs/angels. The users don't necessarily see
all startups in that space covered equally. For TC, it works well since it
guarantees access to other news stories before anyone else.

~~~
albedoa
It's really awful sometimes, and it's unfair to worthy startups that deserve
the attention.

Compare the coverage of Quora versus StackExchange, for example. There was a
period when there were two Quora articles _per day_ on TC. StackExchange is
lucky to be mentioned once every few months, and even then it's usually only
brought up as a comparison to "Quora and other Q&A sites".

~~~
IgorPartola
I am asking an honest question here as I have no idea as to what the answer
might be:

What good does it do for a startup to be featured on TC? I suspect it may have
to do with getting funding if you are doing a round, but is that it? I would
assume that most startups don't derive many paying/staying customers from a TC
post, unless the startup itself is narrowly targeted at entrepreneurs/other
startups.

~~~
benologist
Echo chamber benefits ... if people keep hearing your name they're going to
start saying it too, some will be investors, some will be users, some will be
disheartened competitors who can't get a major update written about while your
minor layout tweak got 300 words.

------
jjm
TechCrunch is not some 'outstanding' reporting venue with a long history of
righteousness.

This is the internet, this is capitalism.

Start your own 'Techcrunch' if you want fairness, no one is stopping you.

~~~
nostromo
No one is stopping us from asking TC to be a better source of unbiased
journalism either -- which is what this post is about.

~~~
jjm
Look, I do understand your point and that you want TC to be a "better source
of unbiased journalism". But TC doesn't want that. They just want to make
money. While once in a while you'll see a good article over there, they'll
never be a NYTimes, Tribune, WSJ, or TW. It is just not something they care
about.

It is almost like asking TC to pivot.

------
edw
I've never really expected—nor do I know anyone who expects—a lack of bias
from Arrington. People have been accusing him of playing favorites for a long
time.

I would be less upset—though it's not like I'm upset about this anyway—if he
hadn't sold to AOL, because this lessens his incentive to nurture TechCrunch.
If I were him, I'd be staring at the countdown clock that keeps me in my
golden handcuffs. One of the things I learned about starting a company is to
know when to disengage emotionally. And I'm guessing Arrington's is _way_
disengaged.

And if he's disengaged, it probably doesn't matter whether he invests in
companies or not. If he doesn't, it doesn't mean he's going to give attention
to the companies he considers boring or losers or whatever. This basically
allows him to place bets on the companies that he probably would have have
been a cheerleader for anyway.

Yeah, it's hard to get too worked up over this.

------
raganwald
Hi Paul Graham,

I’m one of your customers.

We don’t really know each other. We’ve chatted at a few events, Hacker News
features some of my posts, but I’m mostly just a guy who reads Hacker News a
lot. I find it’s a pretty good place to see what’s important in the industry.

I am software guy, not a media critic. But I’m a big believer that economic
incentives shape behaviors in subtle and unmeasurable ways. And I think your
decision to make investments in startups is going to make Hacker News a worse
product.

I can’t tell you exactly how. Are you going to be a little more likely to flag
stories about competitors to your companies? Upvote them, even when they’re
not newsworthy, to show you’re not biased?

I don’t know. But I think it’s going to happen, it’ll be subtle, and it’ll
make Hacker News worse.

I’m not making demands or threatening to leave. Just making a request, from
one software guy to another: moderator independence is a great feature. Please
don’t cut it.

Best wishes,

Reg Braithwaite

~~~
meterplech
I think that's not a fair analogy. PG isn't the curator for content on HN, and
while you could argue he could algorithmically alter stories about YC
companies, or manually remove stories, this isn't an editorial blog. It's a
collection, and the users vote stories up and down.

PG's goal from HN is to get a pulse of the tech community, see smart people
who may be interesting to invest with in the future.

Arrington theoretically runs a journalistic operation, and he brings up
journalistic integrity when it suits him. This is a much stronger conflict of
interest for something that perceives itself as journalistic.

While the blog didn't bring up great examples of how this will hurt TC, I
don't think it's an even analogy.

~~~
raganwald
It's fast and loose, but to be honest I neither agree nor disagree with the
post's premise, it just seemed like a good point to bring up to spark some
discussion.

As for journalistic integrity, my feeling is that conflict of interest in
journalism is between a journalist and his employer, not between a journalist
and his readership. Media properties all have strong biases fueled by the
self-interest of their owners, the market they are attempting to serve with
their product, or other factors. In the era of Wikileaks, Twitter, and blogs,
journalistic integrity seems like a quaint notion, more unusual when it is
present than when it is absent.

I live in Toronto. None of my daily newspapers are unbiased. How about your
town?

~~~
Laments
I disagree with this assertion: "my feeling is that conflict of interest in
journalism is between a journalist and his employer, not between a journalist
and his readership."

A lot of people view Arrington as the face of TechCrunch and I feel like his
stories drive a significant amount of traffic to the portal. I, for one, know
that I read stories with his name on it -- even if I'm not terribly interested
in them.

But, if Arrington's showing favoritism or is holding back, simply because he's
invested in a company, it makes TechCrunch less relevant -- since someone else
will break the story, or it may be biased. (And, let's be fair -- nobody
expects complete impartiality from an investor. They're already partial, else
they wouldn't be investing.)

To quote Arrington, "There’s a period of time with any investment when I know
an investment is possible or likely but it can’t be announced yet. During that
time I don’t write about the startup at all, because I can’t disclose the
investment. When another writer wants to break a story we may have to hold
that story, or it becomes a forcing function in announcing sooner." And this
is the hart of the debate.

To address your other point: I know many, many, many journalists who have
incredible integrity -- just avid news consumers today are becoming
disenfranchised by news media (and I'd like to point out that Wikileaks,
Twitter, and blogs are none of the above) does not mean that it does not
exist. Would you really rather go to the biased news source if the unbiased
one was right next to it?

This is the type of decision that is an inflection point -- because
Arrington's refusal to stop will allow a lot of tech journalists to begin
lobbying hand grenades at any unfavorable TC press ("I sure hope that
Arrington doesn't have a hand in that! hahaha.")

~~~
raganwald
_if Arrington's showing favoritism or is holding back, simply because he's
invested in a company, it makes TechCrunch less relevant_

It's up to you whether you want to read his stuff or not, and why. However, I
do not believe that bias in and of itself disqualifies a speaker/writer/source
from relevancy:

<http://raganwald.posterous.com/bias>

By way of a similar example, most people think Daring Fireball is biased. It
doesn't appear to have anything to do with Gruber's investments, just his
passion. Some people avoid his writing because of his bias, some embrace it,
and some--like me--try to include it in a portfolio of things I read.

I have my own reasons for not reading Techcrunch, but Arrington's investments
isn't one of them.

~~~
cube13
>By way of a similar example, most people think Daring Fireball is biased. It
doesn't appear to have anything to do with Gruber's investments, just his
passion. Some people avoid his writing because of his bias, some embrace it,
and some--like me--try to include it in a portfolio of things I read.

The difference between TechCrunch and Daring Fireball is that Gruber presents
Daring Fireball as his personal blog. It's not presented as a news source.
Gruber is more of a pundit than a journalist, and he wears his biases on his
sleeves, showing them to everyone. He's using the soapbox that DF gives him to
push his views.

TC, on the other hand, is presenting itself as a news site. The people on it,
unless they are offering commentary, are supposed to be Journalists. Their
reporting should strive to not be biased, which includes reporting any
potential conflicts of interest(i.e. investing) in a company within the
coverage of the company. A reader should think that the coverage on the site
is noteworthy because it is news, and should not have to question the author's
intentions or reasons for featuring it.

Otherwise, it's just advertisement at best. At worst, it's just self
enrichment by the author. I should note that I'm fine with with this, if the
site presents themselves as such. If you're going to be biased, announce it to
the universe. Don't hide behind being a "journalist" as your reason for not
disclosing anything.

~~~
raganwald
As a matter of personal morality, I would say this. I don't believe that
journalists need to >try to be< unbiased. However, if I were talking to
someone who does believe that journalists need to >try to be< unbiased, I
would be careful not to claim that my own writing is journalism. No matter
what I believe the word means, knowingly misleading someone else is wrong.

I don't know if Arrington knowingly misleads people by claiming to be a
journalist, but if he is deliberately setting an expectation of lack of bias
and lack of personal interest in order to profit from that, well, we can both
agree that regardless of what journalism means to me or to Arrington, it is
wrong to set a false expectation.

~~~
cube13
I said that the journalists should _try_ to be unbiased, not that they
themselves should be. It's a very subtle difference, but I know that it's
impossible for them not to be unbiased. They are human, after all.

The problem that I have with Arrington being allowed to invest in silicon
valley startups, while maintaining his role as an editor of TC is that it
presents a pretty clear conflict of interest.

That knowledge alone would make me, a reader, question the intent behind any
story. It makes it hard to take any of their coverage seriously, because for
all I know, Arrington could be using his readership to enrich himself over
actually reporting interesting news.

------
vipivip
Probably this is why some startups get so much coverage from TC while others
hit the wall.

------
blantonl
What journalistic organization doesn't play favorites?

It is role of the reader and other journalistic organizations to balance out
any inconsistencies in one organization's proclamations over another's. They
do this by:

* writing counterpoints that refute a proclamation

* walking with their feet

It may take time and a lot of effort to counteract a journalistic organization
that strays too far off the path, but that time and effort always results in
the truth.

------
cletus
File this in the category of "questions I never would've thought to ask".

There is a fine line between being a blog and being a journalistic
organization. Some argue the former is a case of the latter. In the latter,
there is clearly an ethical obligation to disclose any conflicts of interest.
Many journalists are either required to or choose not to voluntary (to avoid
the appearance of impropriety) invest in anything they're covering.

So while bloggers may not fall under the same umbrella, ethical bloggers I
believe would either avoid such potential conflicts of interest or at least
disclose them.

It's a real problem here because the issue isn't simply the coverage itself
but what companies get coverage and what don't. There's nothing to disclose on
for a story that isn't written. For startups this is a _huge_ problem.

What's more, I think AOL views itself as a journalistic organization. As such,
I'd be surprised if Arrington's angel investments didn't run afoul of AOL's
ethics policies.

Basically it looks to me like Arrington has gotten his big payout and he's not
so much interested in his earnout. Basically, I think he wants AOL to fire
him. He'd no doubt get some kind of acceleration on any vested stock or earn
out and I think he'd be happy with that.

Whatever the case, I think for TechCrunch to survive and be taken seriously
(as seriously as it ever was at least) it needs someone at the helm who, well,
gives a shit. That isn't Arrington.

~~~
knowtheory
I think you're asking the wrong question.

The correct question is who is Arrington's constituency? It's not the general
public. He doesn't care about ethical investing standards and bias.
Motherfucker is biased. Very biased. He represents the Silicon Valley bubble.
But he's okay with that. And he wants to know what's going on within the
bubble.

I agree that we should do away with the pretense that TechCrunch is some how
journalism, but i think that investor advocacy isn't a bad thing. It's just
not journalism.

In a way though, it doesn't matter. We live in the era of Fox News, "Caveat
Investor", and advocacy journalism as a business tactic. AOL ultimately cares
about eyeballs, not journalism. Do you think Arianna cares about ethics and
journalistic standards? I think she cares about eyeballs, and getting a
certain set of POVs out.

------
pauldisneyiv
This is interesting to me.

I wonder if we - to a certain degree - might receive better reporting since he
is more active on a day-to-day basis in the actual investing. I really have no
idea if this would be the case, but it's entirely possible that he might be
privy to additional info than he would otherwise.

As for as the open letter...Mike appears to be open about who he's investing
with and I would doubt he would want to harm his reputation - or TechCrunch's
- by appearing to be biased towards those he has a vested interest in.

Well written letter but perhaps wait until you have examples of the downsides
before you write the next. It will carry far more weight.

~~~
schmittz
I hadn't thought of that before reading your post, but I agree. Mike getting
into investing may actually improve TC because he now is getting involved with
startups on a more fundamental level. It might open him up to reporting on
startups that would have otherwise been missed because they aren't buzz
companies. In any event, it will prove to be an interesting case study in
journalistic integrity.

------
stretchwithme
Blogs are written by subject matter experts that know their topic better than
any generalist. They are, by definition going to have their hands in the pie.

So if you want coverage from people that are unbiased (or less biased) but who
don't quite get it, stick with mainstream media. If you want expertise with
potentially an axe to grind, go with blogs.

Better to look at both and always question what you read from both angles of
competence and integrity.

------
ares2012
Now that he's sold TechCrunch to AOL, I'm not clear why anyone would expect
that he would not invest in start up companies. TechCrunch is no longer just
him or him and a few bloggers, it's part of a major media organization. If
their rules allow him to invest in the companies he covers then that is a
problem with their journalistic policies, not with him acting in his own best
interest.

~~~
benologist
Their rules don't, they made an exception for him after the fact according to
allthingsd.

------
dterra
Only time will tell, and startups or established business es that will suffer
it or not, will let us all know. I dont agree with the letter, and even the
analogy with PG. You can still build and launch. and be successful not
depending on MA or PG. Let them do what they do, because they do it amazing.
Again, time will tell if MA is doing it all wrong. I dont think so.

~~~
raganwald
The analogy with Hacker News was not meant as a criticism. I personally think
that Paul's interest in investing in startups--which may be more about passion
than pecuniarum for all I know--actually makes Hacker News a better forum than
if it were moderated (or meta-moderated) by someone with an interest in page
views or the size of the community, to give two examples.

I had expected people to follow that reasoning and reply "Actually, HN is
better because Paul Graham is more interested in nurturing startups than in
selling advertising." I was mistaken and have learned that sometimes a simple,
direct argument is going to get the job done while an indirect argument may
just come across as noise.

Mea Culpa.

------
lotusleaf1987
TechCrunch has already gone downhill. Arrington covers himself more than any
other subject. Him investing startups will only exacerbate this.

------
geoffw8
He's always had "companies", i.e. Edgio.

I'm fed up of hearing peoples whiney opinions.

~~~
veb
Then don't come to a PUBLIC message board.

