FORTUNE -- It has been 20 months since TechCrunch founder Michael Arrington launched CrunchFund, a venture capital firm that had the blessing of AOL, the company that had purchased TechCrunch one year earlier. Until AOL changed its mind, and Arrington was fired. Until it changed its mind again, and he rejoined TechCrunch as a paid contributor.
Outside of the Arrington-AOL drama, however, CrunchFund itself has largely flown-under the radar. It doesn't even have a website (take that Benchmark!). It has been so low-profile, in fact, that some in Silicon Valley have whispered that Arrington is sitting at home in Seattle with his feet up, resigned to the notion that CrunchFund was a blogger's failed investment experiment. Yesterday those rumors got even louder, with news that one of CrunchFund's three partners -- MG Siegler -- had quit to join Google Ventures.
From what I can tell, however, such speculation is totally unfounded.
CrunchFund was reported to have raised $20 million at launch, with an $8 million cornerstone commitment from AOL (AOL). Most of the rest came from Silicon Valley investors, including both individuals (Ron Conway, Marc Andreessen, etc.) and firms (Kleiner Perkins, Sequoia, etc.). It quietly would add another $7 million, according to an SEC registration document.
For AOL, the original commitment was seen as a way to keep its key talent happy. For the VCs, it was a way to ensure coverage for portfolio companies on TechCrunch (or, on the flip side, ensure a lack of negative coverage on TechCrunch). No one I spoke with at the time really talked about return expectations, although no one doubted Arrington's access to hot entrepreneurs.
And it may have been a good thing too, because CrunchFund's initial investment strategy resembled Dave McClure on deer antler spray. Sometimes it would pump just $10,000 into a new startup, and other times would invest well under $1 million in later-stage companies valued at $1 billion or more. Ultimately, however, Arrington and company settled on a sweet spot of between $100,000 and $500,000 for early-stage companies -- which makes more sense for a $27 million micro-VC fund.
To date, CrunchFund has invested just over half its capital into more than 80 companies. Ten of them already have experienced liquidity events -- including "acqui-hires" -- while only one has been written off. The current internal rate of return (IRR) is somewhere between 20% and 30%.
That data signifies two things: (1) CrunchFund doesn't actually need to raise a second fund yet, with plenty of dry powder in the till; and (2) CrunchFund should be able to raise a second fund when it does go out, based on performance.
As for the first point, consider CrunchFund in the very early stages of pre-marketing -- having reached out to just a few of its 61 limited partners. That select company includes AOL, whose CEO Tim Armstrong is scheduled to sit down with CrunchFund partner Patrick Gallagher later this month.
On the second, it wouldn't be surprising to see CrunchFund's investor base change significantly next time around. More traditional VC funding sources like pensions and endowments, and fewer of the rival VCs who didn't really get much TechCrunch bang for their CrunchFund bucks.
One big wildcard may be who, if anyone, Arrington and Gallagher choose to replace Siegler. There is a perception that MG was the trio's most active in terms of sourcing new deals, and his departure was fairly abrupt (he had been in talks with Google Ventures for months, but didn't inform CrunchFund until last week).
Neither Arrington nor Gallagher returned requests for comment on this story, but a CrunchFund investor summed it up like this: "A lot of venture capital is about who you know and what people think about you, but only because we all believe that has an impact on performance. If CrunchFund ultimately generates good returns, he'll get the money [for a second fund]. But it's still too early to send him another check, or to tell him to kiss off -- even though there are probably people who want to do both."
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Will Time Inc. shareholders be as pleased as those of Time Warner Cable and AOL?
FORTUNE -- Time Warner announced Wednesday that it plans to cut its Time Inc. magazine unit loose, spinning it off into an independent public company. There are all sorts of details yet to be worked out, but the largest question is whether this deal will actually work. And, by that, I mean create additional value.
Time Inc. MOREDan Primack - Mar 7, 2013 12:58 PM ET
Last Wednesday, Fortune reported that AOL and TechCrunch founder Michael Arrington had decided to part ways -- following a messy dispute revolving around a VC fund that Arrington had launched with AOL's consent and investment. Today, AOL (AOL) made it official.
In a brief statement, the company said:
"The TechCrunch acquisition has been a success for AOL and for our shareholders, and we are very excited about its future. Michael Arrington, the MOREDan Primack - Sep 12, 2011 12:13 PM ET
Not TechCrunch editor. Not AOL Ventures employee. Michael Arrington is on his own.
It has been a very long week for AOL. And it's about to get even longer.
Last Thursday, word leaked that one of its employees, TechCrunch founder Michael Arrington, was launching a venture capital fund that would include an $8 million commitment from AOL (AOL). Then came a more official version via the NY Times, which included positive quotes MOREDan Primack - Sep 7, 2011 9:10 PM ET
Tech blogger Michael Arrington might be in limbo, but someone else has lost more in the CrunchFund debacle.
It's now been five full days since CrunchFund was unveiled, and no one is coming out of this mess looking worse than Arianna Huffington.
Various reports suggest that she's furious with the implicit breaching of AOL's editorial ethics, and wants Michael Arrington not just banished from AOL editorial, but from AOL (AOL) as a MOREDan Primack - Sep 6, 2011 9:22 PM ET
If Michael Arrington is leaving TechCrunch, what does that mean for the investors in CrunchFund?
Yesterday we were first to report that tech blogger Michael Arrington has launched a $20 million venture capital fund, which is being backed by AOL (AOL) and a group of Silicon Valley's top VC firms.
I'm still working through my thoughts on all this, and AOL apparently is working through what this means for TechCrunch, the Arrington-founded MOREDan Primack - Sep 2, 2011 10:18 AM ET
AOL Inc. (AOL) today is firing hundreds of people, after closing its $315 million acquisition of HuffingtonPost. Many of these are journalists. For example, AOL exec Jonathan Dube tweeted:
I have just laid off dozens of the most talented journalists & product folks I know. Need talent? Let me know!
In a memo detailing the moves, AOL CEO Tim Armstrong tried to soften the blow:
With the acquisition of The Huffington Post and this MOREDan Primack - Mar 10, 2011 1:08 PM ET
The revelation that JPMorgan Chase is planning a dedicated fund to invest in social media companies on behalf of its wealthy clients is the loudest announcement yet that the third (fourth?) Internet bubble is in full swing.
Every day, it seems, another Web company files papers for an initial public offering, and every day the chatter about possible valuations reaches new levels of absurdity. Because it's going to get pretty noisy MOREDuff McDonald, Contributing Editor - Feb 15, 2011 11:05 AM ET
AOL has never been shy about acquisitions. But how they pull them off sure has changed.
AOL Inc. has the same initials and hunger for takeovers that the old America Online did—but it does them in a very different way. The new AOL uses a takeover currency that the old AOL almost never used: it's called cash.
The old AOL (AOL) did a ton of takeovers, too, but almost always used a MOREAllan Sloan, senior editor-at-large - Feb 8, 2011 11:29 AM ET
Tweet of the day comes from @pkafka, who just wrote:
If WSJ $30M TechCrunch # is correct, than AOL values company that doesn't own content 2x more than one that makes it.
Kafka, a media writer with All Things D, is referring to the fact that AOL today announced two acquisitions: TechCrunch (ubiquitous tech blog) and 5Min (syndication middleman for online video).
Pricing details for TechCrunch have not yet been disclosed, but estimates MOREDan Primack - Sep 28, 2010 2:59 PM ET
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