One of Yahoo’s biggest long-term investors, Capital Research and Management, which owns more than 10 percent of the company in two different funds, is leaning toward voting for the slate proposed by activist shareholder Daniel Loeb of Third Point, in the wake of the controversy around the botched bio of its new CEO Scott Thompson.

“Having a CEO with that hanging over his head is really a problem going forward,” said one person with knowledge of the situation. “It’s hard to pretend this is not a problem.”

While sources said Yahoo’s longtime institutional investor — which currently holds large stakes via its Capital Research Global Investors and Capital World Investors funds — is not likely to go public with their voting choice until close to the annual meeting, which will take place sometime this summer.

But its fund managers have told key Yahoo board members of their grave concerns over the situation.

Ironically, in the last proxy fight showdown with Carl Icahn, Capital removed its support of Yahoo’s slate too and was an important influence to many major changes at the company.

Such a move is problematic for Thompson, since the rejection of another big shareholder at its upcoming annual meeting will keep the unusual issue and right in the middle of a noisy proxy fight.

A special committee of the Yahoo board is investigating the situation — in which a fake computer science degree somehow got on the resume of the former president of eBay’s PayPal payments unit and later into official Yahoo regulatory filings.

The problem was uncovered last week — unfortunately for the Silicon Valley Internet giant — by Loeb, who has been banging away on Yahoo since.

A trio of independent Yahoo directors is looking into the mess, with a focus on how that happened, whether anyone at Yahoo knew of the inaccurate bio and how it got there in the first place.

Also of great concern, is how Thompson could have not seen the error in the many years it was on the Web site of eBay and also how he approved a bio that had the inaccuracy in it when he was hired by Yahoo in January.

Worse still, in a 2009 interview, he clearly did not say he did not have such a degree in with a radio show host when directly asked about it.

“It’s a little hard believe an executive of this level would have missed such a thing, when he had so many opportunities to fix it,” said one source. “And, if he did overlook it that many times, that’s a problem too.”

In fact, according to a report earlier today by Business Insider that I also confirmed, Thompson told employees today in two separate meetings that he did miss the error since it was placed there — inexplicably — in 2004. In the meeting, he blamed a low-level headhunting staffer who added it incorrectly, an error that then proliferated.

Thompson also said he did not provide a resume to the company in his hiring process — say whaaaat, but true — although this still does not absolve him from the original error.

As to the interview: Thompson said he did not want to be rude and correct the host of TechNation, Moira Gunn, after she clearly asserted to him he had a computer science degree as part of a question on his qualifications. Others present at the meetings said he said he did not hear the question.

But, in an video interview with me yesterday, though, Gunn said she and Thompson discussed a computer science education in a way that left the clear impression that he had obtained one.

While Thompson’s excuse may beggar the imagination of some, it’s his story and he’s sticking to it. In all seriousness, his complete lack of willingness to take responsibility for the error — even if it was not his fault — itself is a little startling.

Because what’s not clear is how the bio was miraculously correct in eBay’s official filings and also if it is plausible that he never saw the mistake.

Numerous communications execs at Internet companies told me that it was unusual for a high-level exec not to pay close attention to information that went out about them, especially in legal filings. In addition, just as many execs are made to check and swear on their bios that go into such documents.

In fact, it was Thompson’s job to make sure the things written about him were correct at all times. As CEO, as a major Silicon Valley player pointed out, he is required by federal law to personally certify Yahoo’s Securities and Exchange Commission filings. Violations of these rules carry financial and also potential criminal penalties.

Sources said the board is worried about that credibility issue too and it puts Thompson in an ever-dicier position. Noticeably, the board has yet to make a public statement of support for him on the issue.

Also a major worry for the directors is the mostly negative response to the situation from Yahoo employees, who are deeply upset that Thompson’s error was not caught and that he might not be treated in the same way as anyone else who turned in a false resume, whether it was by accident or not.

A Yahoo spokeswoman told me last week that there was also support internally for Thompson, but in many dozens of interviews I have done with Yahoo employees and a continued monitoring of internal bulletin board, the tone is not in his favor by any means.

Like I said, it’s a dicey time to be Scott Thompson right now.

RELATED POSTS:

• Yahoo’s Parting With Thompson Will Be for “Cause” (a.k.a. CSLie)
• Ross Levinsohn’s Yahoo Plan: Back to the Future
• Here’s New Yahoo CEO’s First Note to Troops! (The Leaking-Internal-Memos-to-ATD Policy Remains in Effect As Usual)
• Yahoo Officially Confirms ATD Report on CEO Changes and Proxy Settlement
• Meet the Man I Call “The Hair”: The Video Stylings of Yahoo’s Newest CEO Ross Levinsohn
• Will Thompson’s Ouster Mean a Yahoo-Facebook Patent Settlement Too?
• Exclusive: Yahoo’s Thompson Out; Levinsohn In; Board Settlement With Loeb Nears Completion
• Heidrick & Struggles Slaps Back at Thompson’s Yahoo in Blame Game Over ResuMess
• Is He In or Is He Out? Crunchtime for Scott Thompson at Yahoo.
• Not So Scott Free? Yahoo’s Other Big Shareholder — Cap Re — Leaning Toward Supporting Loeb Over Thompson ResuMess.
• Tech Nation’s Gunn Says She and Yahoo CEO Discussed Their CS Degrees Before 2009 Show (Video and Audio)
• Loeb Calls Again for Thompson Firing From Yahoo, as Former eBay Boss Supports Him
• Place Your Bets: Will Loeb Drop Another Bomb on Yahoo at Vegas Confab Later Today?
• Exclusive: Yahoo Director in Charge of Botched CEO Vetting to Step Down From Board
• CEO Says Sorry to Yahoos for Borked Bio “Distraction” — But Will Mea Culpa Work Without an Apology for Error? (Memo)
• Buffett Comments on Trust Issue in Yahoo CEO BioGate: “You’ve Got a Problem”
• Loeb Lobs Lawsuit, as Expected, at Yahoo’s Borked Bio Mess
• As Yahoo CEO Reaches Out to Top Staff, Board Meets to Weigh “Options” (I.E., Deciding Who Gets to Take the Borked Bio Blame)
• Yahoo Should Expect Incoming Lawsuit Lobbed by Loeb Tomorrow on CEO Hiring
• They Shoot Yahoo CEOs, Don’t They? But Not Without a Really Smoking Gun and a Much Stronger Board.
• Yahoo’s Thompson Asks Employees to “Stay Focused” — Except Not on Him
• In 2009 Interview, Yahoo CEO Does Not Deny He Has a CS Degree, and Calls Himself an “Engineer” (Audio)
• Yahoo’s Board Will “Review” Resume Discrepancy of CEO
• How Did a Phantom CS Degree Get on CEO’s Bio in SEC Filings? Yahoo’s Not Saying.
• Yahoo’s Response on CEO’s Computer Science ResumeGate: “Inadvertent Error”
• Dan Loeb Alleges “Discrepancies” on Yahoo CEO Scott Thompson’s Resume Related to Computer Science Degree

Kleiner Perkins Caufield & Byers partner Aileen Lee is founding a new seed fund — still unnamed — that is focused on backing and helping develop early-stage start-ups.

Lee, who has been at the famed Silicon Valley venture firm for a dozen years, will remain a partner at Kleiner Perkins, although her full focus will be on the fund. While she declined in an interview this morning to say what the size of the new fund will be, most such efforts range from $10 million to $70 million.

Along with Kleiner, there will be several other unnamed investors and strategic partners, said Lee, who is in a quiet period of fundraising and could not give more details. It will be separate from Kleiner.

“I read a book that said you should make a big change every seven years, and this was an area of investing that I really have wanted to be in,” said Lee, who at Kleiner has backed companies such as One King’s Lane, Rent the Runway and Dollar Shave Club. “I really have become very interested at working with and helping entrepreneurs at the early stages of their growth.”

KP’s John Doerr said that while some VC firms are creating their own high-profile seed funds, he and Lee felt it was important for such an investment vehicle to be independent to be effective and also to work with other seed efforts that have exploded on the tech scene.

“But we wanted to invest in it, so it’s the best of both worlds,” he said. “It’s really important that start-ups at that stage get the kind of attention Aileen can give them.”

According to her bio on KP’s Web site, Lee worked at the Gap before her VC life, as well as Odwalla and the North Face. The MIT and Harvard Business School grad also worked at Morgan Stanley in technology mergers and acquisitions.

It’s one thing to not be targeted in any regulatory action that strafed your competitors, but SecondMarket CEO Barry Silbert used the opportunity to tout just why his company missed the bullets.

In an unusual and interesting post on social answer service Quora, Silbert gave a long answer to the question entrepreneur Jason Calacanis asked there: “Why wasn’t SecondMarket part of the SharesPost/secondary market SEC action today?”

That would be the investigation by the Securities and Exchange Commission, which filed charges, as Arik Hesseldahl wrote earlier this week, “against two managers of private funds that had raised more than $70 million to acquire and trade pre-IPO shares of Facebook and other tech companies with misleading investors and charging undisclosed fees. It also brought charges against SharesPost, saying it had engaged in securities transactions without being registered as a broker-dealer.”

The move was part of a year-long inquiry aimed at secondary markets, where firms trade privately owned shares and options of pre-IPO companies.

Silbert, who runs one of the biggest companies in this sector, apparently decided to make hay while the Feds shone (up). In the Quora post, he noted: “I am proud to say that SecondMarket is not among those investigated or charged, which only reinforces SecondMarket’s ongoing commitment to being the trusted, compliant and fully-regulated marketplace in the startup and private company ecosystem.”

If he does say so himself!

All kidding aside, it is actually a novel way to turn a story that could tarnish everyone nearby into a plus. (Plus, ABC — Always Be Closing!)

Among the reasons that Silbert said SecondMarket was not part of the government probe: “Fully regulated, soup to nuts, from the start” (the company is a registered broker-dealer; “close coordination with private companies on all transactions” (“customized secondary markets,” he noted); “rigid accreditation process” of buyers; and “no disclosure of private company valuation and pricing.”

In an effort to minimize the impact of massive layoffs that Yahoo’s top management has been planning, according to sources close to the situation, one of the latest ideas to save costs and presumably jobs by new CEO Scott Thompson is to sell off much of its advertising technology platform, including Right Media.

And among the possible buyers Thompson has been targeting in recent visits: Google and Microsoft, as well as Silver Lake, the private equity firm that had once been talking to the Silicon Valley Internet giant about making a large investment in the company.

(That particular deal has gone south, but there is always yet another scheme on the horizon at Yahoo!)

The concept behind such a sale, according to several sources inside and outside the company, is to turn a cost center into a revenue source, with Yahoo essentially outsourcing a business that was a cornerstone of its strategy. A negotiable number of employees affiliated with those units would then move over to the new owner.

The most ideal plan, said sources, would be to sell Yahoo’s whole advertising technology “stack,” including the Right Media Exchange, a marketplace for advertisers, publishers and ad networks to trade online ads. Yahoo bought it for $700 million in 2007.

According to info on the company’s site, it has “300,000 active global buyers and sellers and more than 11 billion daily transactions.”

Also part of the possible package is APT, a system Yahoo has built to make buying and selling online advertising easier. In addition, Yahoo’s technologies for display-ad serving have been mentioned as a possibility for sale.

It’s unclear what the potential sale means for the new ad strategy that U.S. boss Ross Levinsohn and his lieutenant Jim Heckman have been pursuing since last summer. That plan included its own acquisition of ad network Interclick and an attempt to sync up with rivals AOL and Microsoft in an effort to fend off Google and some third-party players, like ad networks.

But the reason for contemplating much a major move — which has been considered before, but never has been seriously offered — are obvious: While Yahoo once dominated this arena, it has steadily lost ground, especially to Google. The search giant has made almost all of its money in search-related ads, but has been moving aggressively via its DoubleClick and other ad-serving entities into higher-level ads.

Microsoft has also been trying to compete, as has AOL, but it’s getting to be an expensive race, and one where Yahoo would have to make major investments to once again gain momentum. Building up this business again had been the aim of co-founder Jerry Yang, who wanted to go big in the arena in a number of ways before he left the company earlier this year.

But those days seem to be over at Yahoo.

“A lot of what has happened so far under Scott [Thompson] has been trying to find more revenue anywhere it can be generated, and get out of businesses that are not growing,” said one person. “Right now, it’s a lot about what we shouldn’t do rather than what we should.”

That has meant visits to see both Google and Microsoft about possible deals by Thompson, with the involvement of CFO Tim Morse and Chief Product Officer Blake Irving.

Thompson (pictured here) has also recently been talking to Silver Lake about the ad-platform sale, in a deal that might include the Andreessen Horowitz venture fund. This would be a different kind of transaction, said sources, in which a separate company would be formed, with Yahoo owning a piece and contracting with the new entity to provide ad technology.

All this activity is related to the layoffs in the works of perhaps thousands of employees, which were to have been communicated to the company this week.

Sources said those have been delayed for some weeks for several reasons, including whether to consider more deeply if certain larger business units can be spun off, sold or somehow transformed. (To be clear: Major layoffs are still being planned, but now might take place in two parts, said sources, in what is a quickly changing and volatile atmosphere at Yahoo.)

Another area being looked at, said sources, is Yahoo’s search advertising partnership with Microsoft, which has not been as successful as had been expected. While Yahoo has been working with the software giant about improving the results, Thompson has apparently been contemplating other possibilities, including working with Google (calling all regulators!) and/or laying off up to 900 employees who work on the company’s search offering.

Any of these moves could, of course, cause a firestorm of controversy, which Thompson appears to not worry much about. He was the driving force in Yahoo’s patent lawsuit against Facebook earlier this week, which is largely attracting a negative reaction across the tech landscape.

A number of prominent voices have spoken out against the legal action, including well-known VC Fred Wilson, who yesterday penned a poisonous blog post, titled “Yahoo Crosses the Line.”

It ends thusly: “I am not writing this in defense of Facebook. They can and will defend themselves. I am writing this in outrage at Yahoo! I used to care about that company for some reason. No more. They are dead to me. Dead and gone. I hate them now.”

Ouch!

Also weighing in publicly via Twitter was former Yahoo director Eric Hippeau, who was one of the company’s first investors, which is embedded below:

Pathetic and heartbreaking last stand for Yahoo bit.ly/yirCcj It’s all over. I loved you very much.

— Eric Hippeau (@erichippeau) March 13, 2012

Double ouch!

All I can say is that Thompson certainly has a lot of gumption. That has actually been his M.O. from the start, said several sources, with the former president of eBay’s PayPal payments unit and dark horse cold-emailing his way into the Yahoo CEO job.

True story: He had not been among its list of possible candidates — largely because he had been placed in his job at eBay many moons ago by Heidrick & Struggles, which was conducting the Yahoo CEO search, and that’s a talent acquisition no-no to poach someone you placed.

That did not stop Thompson, who thought he might be good for the job and reached out directly to board members at the end of the selection effort, which then led to the search committee and soon enough to the job in what was a very quick vetting and secretive (although not secretive enough!) hiring process.

Since then, Thompson has been on a tear, from working on a restructuring to trying to assuage activist shareholder Dan Loeb to helping put the kibosh on its Asian stake sale talks to suing Facebook. And now this sale effort, too.

If the peripatetic Thompson — who might need a dose of Ritalin before this thing is over — wanted to get noticed by the tech powers that be: Mission accomplished!

“He’s definitely someone who appears to have decided on shooting the moon with a lot of these actions,” said one person close to the situation, referring to the move in the card game of Hearts, which is a risky gambit to capture every penalty card worth 26 points in order to win. “I just hope no one loses an eye in the process.”

(That would be triple ouch, by the way.)

No comments all around, but everyone was certainly cordial on this rainy morning.

The Silicon Valley company on Wednesday is announcing a $100 million venture capital fund to accelerate technology innovation in cars. Intel said it will also establish a product development center in Germany that will focus on the field.

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Have you never heard of Starboard Value?

Me, either!

But the New York activist fund is readying to make a splash as soon as today, several sources said, if it follows through on the expected naming of an alternate board to challenge AOL.

Saturday is the official deadline to nominate directors to the board of AOL, also based in New York, which will have all eight up for reelection.

Sources said Starboard has talked to several Internet types, but that it has plans to put up a slate made up more of Wall Streeters to present at the company’s annual meeting later in the year.

In a filing last week, Starboard said it had been in discussions with AOL management about its concerns, so it is certainly possible the investor and the company could come to some agreement over board seats and strategic direction before it gets Yahoo-ugly.

That would make it a kind of an East Coast proxy battle version of what’s been going on over at Yahoo and its tussle with Third Point’s Daniel Loeb. He recently followed through on long-expressed unhappiness with the Silicon Valley Internet giant, and named a slate of directors — including well-known media exec Jeff Zucker — to replace current ones there.

The same kind of thing has been in the works at Starboard, which sent a letter in late December to AOL CEO Tim Armstrong, saying his much-touted strategy around content was not a good one for investors.

Like Loeb at Yahoo, Starboard is one of AOL’s largest shareholders, with a stake of just over five percent.

The letter signaled an increasing impatience with the pace of Armstrong’s turnaround efforts, which are still in turnaround. Meanwhile, AOL’s stock has rebounded from last summer’s lows of near $10 a share.

The stock is up more than 22 percent this year, to $18.44. But that’s still down almost 20 percent from when AOL spun off from Time Warner and went public in late 2009.

The grumpy (and opportunistic) Starboard entered the picture late last year.

According to The Wall Street Journal:

“Starboard, which focuses mainly on small-cap companies, was spun off from Cowen Group Inc.’s Ramius Capital LLC in March. In October, the fund successfully waged a proxy fight against hair-salon chain owner Regis Corp. when three of its director nominees were elected to Regis’s board. AOL, which was spun off from Time Warner Inc. in 2009 after a failed merger, is its most high-profile target yet.”

One of the investment fund’s bugaboos is Patch, the local news network that AOL has sunk a lot of dough into. Also under fire is Armstrong’s content efforts and the pace of its display advertising sales, including the high-profile acquisition of the Huffington Post and TechCrunch.

I have emails into all the bigs at AOL and Starboard, so we’ll see who calls back first, if at all.

Memo to the world from Silicon Valley legend and power-VC Marc Andreessen: “I think that this is more of the theme that software is going to be eating all other industries.”

More like chomping through them with renewed gusto, with the announcement today that his venture firm, Andreessen Horowitz, has raised a huge new $1.5 billion fund to continue to fund “extending our capabilities to more disruptors,” according to Andreessen’s longtime partner Ben Horowitz.

And by capabilities, the pair means handing from $10,000 to $100 million to Internet entrepreneurs in all kinds of arenas — such as its previous investments in Airbnb, Pinterest and a plethora of others — from its new third fund.

This large amount brings Andreessen Horowitz’s total in just three years to $2.7 billion, which Andreessen said took about the same amount of time to raise as the previous one. The new fund is made up of largely the same limited partners.

“It is almost double, but it sets us up well,” said Andreessen, who said the LPs urged them to raise more. “Our first fund was, as it turns out, undersized in terms of the growth opportunity we found.”

The interest from the firms’ LPs aligned, said Horowitz, noting that he thinks their interest was because investors are becoming more selective about firms.

“I think a lot of LPs have begun to think that there are too many VCs not worth investing in,” he said. “Many of them want to then invest in what they consider the best, and if they can’t get in, to not invest at all.”

To be able to give them the kind of returns those investors are expecting, Andreessen said that the investments — which will still be pretty much limited to the Internet arena and in California — will be stepped up to keep the rate of innovation going.

“The opportunities continue to be very, very good, and we find that that continues to be true,” he said. “And there is a big supply of money, and that’s very good from a company standpoint.”

What Andreessen and Horowitz said they will do to continue to differentiate themselves will be to keep on focusing on backing founder/CEOs over all.

“We have a lot of respect for our peers, but we have a different philosophy,” said Horowitz. “The majority of the companies we fund will be run by their founders.”

Andreessen said that philosophy is a bit of a throwback.

“It’s kind of like venture capitalists were in the ’60s and ’70s, in a way,” he said. “We are operators who back operators.”

How green is Silicon Valley? Very, it seems.

As expected, and as has been widely reported (including here), Andreessen Horowitz finally announced its latest venture fund, raising $1.5 billion for venture investments. The huge amount is the Silicon Valley firm’s third.

Its investments in its previous two funds have included such high-profile start-ups as Airbnb and Pinterest.

Here’s the official press release:

Andreessen Horowitz Announces $1.5 Billion Fund III
Continues Focus on Helping Great Entrepreneurs Build Great Companies

MENLO PARK, Calif., Jan 31, 2012 (BUSINESS WIRE) – Andreessen Horowitz ( www.a16z.com ) today announced that it has raised $1.5 billion for its Fund III, continuing its mission of helping great entrepreneurs build great companies.

“a16z’s Fund III is all about extending our capabilities to more disruptors and pioneers,” said Co-founder and General Partner Ben Horowitz. “We’re remaking the modern venture capital firm, and entrepreneurs are responding to our unique approach.”

a16z has raised $2.7 billion since its founding in June 2009 and currently has a portfolio of 90 consumer and enterprise technology companies across all stages, including Airbnb, Box, Fab, Facebook, Foursquare, GoodData, Lookout, Lytro, Magnet Systems, Nicira, Pinterest, Silver Tail Systems, Tidemark and Zynga.

“Software is the catalyst that will remake entire industries during the next decade. We are single-mindedly focused on partnering with the best innovators pursuing the biggest markets,” said Co-founder and General Partner Marc Andreessen.

a16z provides entrepreneurs with direct access to six general partners — Jeff Jordan, Peter Levine, John O’Farrell, Scott Weiss, plus Horowitz and Andreessen — all of whom are experienced operators and company builders. a16z also enables entrepreneurs to utilize expertise from operating partners who specialize in business development, technical talent, executive talent, market intelligence, and marketing and brand building, plus the economics expertise of Special Advisor Larry Summers.

Fund III is available to be deployed immediately. Further detail about the firm’s new fund is available on Ben Horowitz’s blog: www.bhorowitz.com.

Earlier today, Harvard University and New Enterprise Associates announced the Experiment Fund, aimed at making sure that future Mark Zuckerbergs and Bill Gates can stay on campus and innovate without having to head West.

The irony of the pair of legendary entrepreneurs dropping out — decades apart — of the even more legendary university to start two of tech most significant companies, Facebook and Microsoft.

No longer, apparently.

The early-stage incubator, which will award funding to four to six start-ups in amounts from $250,000 to $500,000. It will focus on seed ventures in the Cambridge, Mass. area around Harvard, which includes many other schools such as the Massachusetts Institute of Technology.

The Experiment Fund came from an idea born Harvard’s School of Engineering and Applied Sciences, which involved NEA. Today, SEAS Dean Cherry Murray hosted an event that unveiled the initiative.

But, while faculty members will advise for the fund, Harvard has no financial stake.

In an interview NEA’s Patrick Chung said the intent was to enable talented students to “build a company here in Boston rather than have to go elsewhere.”

NEA will have full-time staffers working on the fund, investing in a wide range of companies. It has already backed a health app company, as well as a live Internet television offering.

“There has been an envy of the left coast, certainly,” said Chung. “Now, these talented engineers don’t have to leave when they reach the boundaries of the university where the ideas are formed.”

Added Chung: “They can walk right out of class and into a place that can make those start-ups real.”

In other words, let’s hope the third time’s a charm.

Here’s the map of exactly where the Experiment Fund is and official press release:

XFund press release

Revolution Growth, a new investment vehicle led by former AOLers Steve Case, Ted Leonsis and Donn Davis, has raised $450 million in their first investment fund.

Originally, as I reported in March, the growth fund was going to be $400 million, but more was added due to investor interest.

The figure is a large one for a new venture and includes two dozen limited partners.

According to a letter to its partners, which I posted below in its entirety, Revolution said it will make 10 to 12 investments over five years in the consumer space of about $25 million to $50 million and mostly on the East coast, where its principals live and work.

The fund will focus on the “speed-up” stage — which is apparently just past venture stage and not yet in growth.

While both Leonsis and Case have done a lot of investing in the Web 2.0 space both together (Revolution Money) and apart (the Groupon and LivingSocial social buying sites, respectively), this is the first time the pair of well-known Web pioneers are creating a more formal investment partnership.

The pair are also investing $75 million of their own money in total in the Revolution Growth fund.

Revolution’s three partners said they will also be deeply involved with entrepreneurs at its companies.

“We are not just investors, but former CEOs and business builders who have the expertise and passion to be actively involved with the companies we back,” said the letter. “By making only a few investments each year, we will have the time to really help the entrepreneurs with whom we partner.”

Well, you can read about the Revolution Growth fund yourself here:

letter

The fund will be managed from the New York company’s newly opened office in Palo Alto, Calif., where it will be led by Harshul Sanghi. Sanghi previously ran Motorola Mobility Ventures.

In an interview, American Express Enterprise Growth President Dan Schulman said the company is interested in start-ups in the digital commerce space, including those focused on loyalty and rewards programs, personalized offers, location-based services, security issues, analytics and online and mobile payments.

Schulman said the goal is to acquire a minority stake in the companies and form a strategic partnership with them, so that they can take advantage of American Express’s 94 million customers. Companies may also have access to its other assets, such as consumer data, as long as privacy is maintained.

American Express has already made a number of investments in the space. Those companies will not be part of the fund. Earlier this year, it invested in Payfone, a mobile payments technology company; it has also formed a joint partnership with Vente-Privee, a French-owned flash sales site.

Among the opportunities that American Express may have potentially missed out on is Square, a mobile payments company led by Twitter exec Jack Dorsey, which raised capital from investors including Visa.

“This is a demonstration of our very serious committment toward moving to a digital landscape,” Schulman said. “This is one of many initiatives that we are doing to get ready for the future and hopefully being a leader in digital payments.”

In closing the fund, the Menlo Park, Calif., firm is bucking two prevailing trends in the venture-capital industry, including an anemic fund-raising environment that has winnowed the number of venture firms that can raise large pools of capital.

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Previously on AllThingsD: What Bad Economy? Three Big Silicon Valley VCs Poised to Haul in $2B in New Fund Raising.

Here’s some electric weekend reading for those interested in the push and pull between venture investors and start-ups in the frothy Web 2.0 environment.

In an email to Airbnb CEO and co-founder Brian Chesky (which I obtained, embedded below), former Facebook exec Chamath Palihapitiya, who now runs an investment fund called the Social+Capital Partnership, is passing on participating in the recent $112 million round for the hot online rental site that was announced in July.

The deal — which values the company at $1.2 billion — has not officially closed yet, but includes venture firms such as DST Global, Andreessen Horowitz and others. Previous investors include Sequoia Capital.

Palihapitiya confirmed to me that it was his email and that his possible investment in Airbnb was small.

That said, his concerns center on how much voting control of new investors’ preferred shares the founders have in the latest round and also a $22.5 million cashing out, $21 million of which is going to those founders.

Another $9.6 million is being used to buy secondary stock from current Airbnb shareholders, who have to render parts of their vested stakes for the money.

Such wrangling between investors and entrepreneurs is not uncommon in Silicon Valley these days, as ever-dumber money chases ever-more-powerful geeks. But Palihapitiya’s email is a smart, reasonable and well-written argument to stop the madness.

According to sources close to Airbnb, the numbers that he refers to below are accurate, as is what appears to be an unusual level of voting control by its founders. Presumably, it is to protect the company from possible future sales on the secondary markets and to keep control with its founders as the number of investors grows.

In any case, the Palihapitiya email to Chesky is well worth the read (I have removed email addresses as a courtesy):

From: Chamath Palihapitiya
Date: Sat, 1 Oct 2011 11:16:05 -0700

To: Brian Chesky

Subject: Airbnb financing…

Brian,

Cc Marc, Reid, my deal team

Thanks again for giving me the chance to participate in your latest financing. I had a chance to review the docs at length yesterday and I wanted to follow up as, quite honestly, I’ve never seen a deal like this over ~60 investments I’ve done and I’m pretty concerned.

I’m all for getting the best valuation you can, minimizing dilution and maximizing control. We did this brilliantly at Facebook…all of our financings (except our first $$$ from Peter Thiel) were done not out of necessity but opportunity. As such, our investors had virtually no control and it resulted in a much better outcome. As we’ve discussed, I generally don’t believe investors add much to a success story and so minimizing their impact is a great strategy when you are onto something that is working.

This said, while several of these concepts are reflected in the current deal, there is one big thing that I am fundamentally against and violates my principles and will prevent me from participating in your round. When I saw that you guys were taking $31M out of the company, I didn’t think much of it as I just assumed it would entirely be via a secondary sale.

But as I understand the deal, it seems that you are doing only $9.6M in secondary and $22.5M as a dividend to common (of which $21M goes to you and your co-founders). I am really uncomfortable with this and don’t think its in the spirit of building a good, long term business. Effectively, it is a strategy that allows you guys to take money out of the business and not dilute yourself — I’m not sure why this is such a big deal when you guys are almost 90% vested and the financing is at $1.2B where your dilution is marginal. Further, it excludes many of the employees that probably have helped you and your co–founders get the company to this place as most of these folks probably don’t have any stock but have unexercised stock options and thus won’t get a dividend.

My basic principle on this stuff is that if you want liquidity, that’s fine, but you should make it available to everyone. Otherwise, no one should get it. Your current deal is the farthest away from this principle that I’ve seen in a while…this strategy has been done once before — at Groupon. We can see how “well” they are doing and how short term the investor community is now viewing their motives. I really think you can do better than this…and that you are better than this.

Separately, when you look at successful tech companies, it seems that dividends are an approach used by cash rich operations to distribute excess earnings — in fact, the most successful, cash rich tech company in the world, Apple, hasn’t issued a dividend and they have more than $75B in cash! Again, while I think Airbnb will be a good company, this is nowhere near the truth now — you guys still need to scale and build this thing for the future.

I really think you are onto something but I would implore you to not take the easy way out. Treat your employees the same as you’d treat yourself. Do things that you will be proud of and can defend to anyone including your Board, employees, prospective hires etc. In such a competitive hiring market, you are competing with not just your obvious competitors, but also any successful tech company who is also looking for great talent. A principle that treats your employees as well as you’d treat yourself is a huge strategy for differentiation, retention and long term happiness of the exact types of people you will need to be successful. In contrast, if you are viewed as self-dealing and shady, it will only hurt your long term prospects…

In summary, I’m passing on this financing because I strongly disagree with what’s going on. I’m not sure who advocated this approach but I did mention this to Reid [Hoffman, another Airbnb investor via Greylock Partners] last night and he was of a similar mind to myself and surprised this was the approach being taken. If you want some good advice — I would ask that you consider pinging him about different ways to think about going about the liquidity portion.

If you change your mind on how to close this financing, let me know and I’d love to reconsider. Otherwise, good luck and lets keep in touch.

Take care,

Chamath

Silicon Valley’s Silver Lake and DST Global of Russia, as well as Chinese private equity firm Yunfeng Capital, are leading a $1.6 billion tender offer for privately held employee and shareholder stock of China’s Alibaba Group, according to sources close to the situation.

Yunfeng, by the way, was co-founded by Alibaba Chairman and CEO Jack Ma, as well as other prominent Chinese entrepreneurs.

Along with DST, Silver Lake and Yunfeng, Singapore-based investment firm Temasek is also participating in the tender offer as an investor, but in a smaller way.

The deal, which has been discussed for some time, was signed earlier today and will be presented to its employees in an internal company blog, which will be in Chinese.

To get around persistent foreign ownership issues in China, sources said, DST and Silver Lake are ceding voting control of their stakes to Alibaba management.

If the tender is fully subscribed, that would mean a stake of just under five percent for the group, sources said, and it gives Alibaba a $32 billion enterprise valuation.

The impetus for the tender offer, which begins today, appears to be trying to address a cash-out, paper-rich issue for Alibaba employees.

There are no active secondary private markets in China, as is the case for tech start-ups in the U.S., and there is also no IPO in the foreseeable future for Alibaba. Thus, management has been looking for a way to give its employees and also other shareholders some liquidity.

This tender offer is not a capital raise by Alibaba and is only aimed at eligible employees and shareholders. The purchase of the Alibaba shares is expected to close before the end of December.

It will be done via a special investment vehicle, specifically aimed at this purchase, that includes a spate of investors. Giant Interactive Group, a Chinese online game developer, for example, said it had committed $50 million to the fund.

It’s not clear what the implications are for Alibaba’s biggest shareholder, Yahoo, which sources said is not selling shares in the tender offer. Yahoo’s fully diluted Alibaba 39 percent stake is now worth $12.5 billion in the deal.

That’s discounted due to tax issues and also the inability of the Silicon Valley Internet giant to sell its Alibaba shares.

In other words, investors will likely welcome this higher valuation, but realize a public offering is farther away than ever.

But it is interesting in that it clearly shows a strong relationship between DST and Silver Lake, which have jointly been mulling a possible bid for Yahoo along with Silicon Valley venture firm Andreessen Horowitz, as I previously reported.

Some will speculate that Silver Lake and DST now have an in with Alibaba, which is important, since a large slug of Yahoo’s market valuation is due to its Alibaba and also Yahoo Japan! assets.

If Yahoo is sold, of course, the disposition of the Alibaba asset is an important part of the deal.

More to come, including the implications for Ma, who has been under siege of late around his spinning out of Alibaba’s Alipay payments service and the noisy battle that later ensued with Yahoo. Yahoo and Alibaba, as well as its other large shareholder, Japan’s SoftBank, settled that dispute earlier this summer.

His involvement in Yunfeng, which is buying the company’s shares in a special fund that Ma is not in, will likely attract some scrutiny, anyway.

Sources said Ma is a minority investor in Yunfeng itself, has no control rights and is not a director. In addition, Yunfeng has no relationship with Alibaba.

In another interesting twist, Alibaba rival Tencent has close ties with DST’s Internet affiliate that used to share the same name, having invested $300 million last year in the affiliate that holds major Russian Internet properties.

AOL and TechCrunch founder and editor Michael Arrington have officially parted ways, almost exactly one year from the New York Internet portal’s acquisition of the popular tech news site.

He was replaced by longtime TechCrunch editor Erick Schonfeld.

The company’s statement said that the high-profile blogger had “decided” to move on, which was a decided understatement, given that the negotiations between the pair sometimes approximated a cage match.

The noisy media fight centered on a new $20 million venture fund that Arrington is now running, called CrunchFund, and his editorial status at TechCrunch with the new role.

Many, including myself, had raised questions about the conflicts of interest inherent in the situation, if Arrington had remained influential at TechCrunch. Arrington had argued that transparency took care of that.

The name of the fund, which is close to the name of TechCrunch, will remain, said Arrington onstage this morning at the TechCrunch Disrupt conference in San Francisco.

“This is my baby and I built this,” he said, in an understated appearance. “So, it’s a sad day.”

Before beginning an opening interview with well-known Silicon Valley investor and venture capitalist Reid Hoffman at the conference, Arrington got off a good joke — one of many to come, apparently (uh-oh!) — by wearing a t-shirt with the label: Unpaid Blogger.

It was a humorous poke at AOL content czar and former Arrington boss, Arianna Huffington, who had called him that in one of the many rounds of fighting of late.

It was all in good fun, finally, after not so much fun.

Along with a media firestorm, the fracas included Arrington posting an angry blog on TechCrunch itself demanding that AOL give him editorial independence or sell him back TechCrunch.

AOL CEO Tim Armstrong and Huffington were inclined to do neither and, thus, Arrington had to go.

Here’s a statement that was just put out by AOL:

“The TechCrunch acquisition has been a success for AOL and for our shareholders, and we are very excited about its future. Michael Arrington, the founder of TechCrunch has decided to move on from TechCrunch and AOL to his newly formed venture fund. Michael is a world-class entrepreneur and we look forward to supporting his new endeavor through our investment in his venture fund. Erick Schonfeld has been named the editor of TechCrunch. TechCrunch will be expanding its editorial leadership in the coming months.”

Oddly, Armstrong put the news of the change at the end of his weekly internal memo to staff, in which he noted that the company would continue as an investor in Arrington’s CrunchFund — a $10 million investment — which had started this whole controversy.

Tim, in old-timey journalism that’s called burying the lede, but here it is:

AOLers –

We’re right in the middle of the most important season of our year and we have some critical work to get done. I wanted to share the highlights of what we are expecting to have happen in the next 12 weeks. As I mentioned last week, we have prioritized our focus areas in a concise document.

The main items are below and there will be a steady set of reviews against these and related items at the weekly product reviews and monthly business reviews:

1. Traffic Growth: Full execution of the Bridge and Tunnel Project

2. Display Ads Growth: Premium formats and video growth/improvement in the quote to collect process for customers and sales

3. Video Platform: Launch of new video platform

4. Patch Monetization: Sales allocations/partnerships

5. Expansion of Content Verticals/Platform: Genre verticals in HuffPost/video expansion

6. Mobile: Content & ads priority match/move mobile engineering up the brand food chain

7. Expansion of Devil Network: Increase partners and scale production

8. Paid Services: Increase commerce partnerships

As we have discussed, the fall of ’11 will be about driving organic product improvement and reducing our focus to the high leverage opportunities. Every new opportunity at the company will be compared to our succinct plan. If we are going to add a new idea, an existing idea needs to be removed. There is room for execution and for improvement — everything else needs to be put on the back burner.

Finally, I’d like to announce that Michael Arrington, the founder of TechCrunch, has decided to move on from TechCrunch and AOL to his newly formed venture fund. TechCrunch continues to be a part of the AOL Huffington Post Media Group. AOL will maintain its initial investment in Michael Arrington’s fund and AOL Ventures will oversee our investment in the fund.

Have a great week everyone — stay focused and keep up the strong momentum –TA

Indeed, now that the disruption is over, it is long past time to focus on the entrepreneurs and start-ups that TechCrunch is built on. Here is the link to watch the live stream of TechCrunch Disrupt.

UPDATE: It’s not over until it is over, apparently. In a blog post of her own, Huffington took aim at The Wall Street Journal over its coverage of the internal battle at AOL.

Calling out a Journal story from over this past weekend as “shoddy,” she took issue with its characterization of AOL as having a “culture of clashing fiefs and personalities,” with a focus on fighting between her and Arrington.

The issue at hand wasn’t about personalities. It was about principle; a very simple fundamental principle about conflicts of interest that every journalistic enterprise adheres to — including the Wall Street Journal, as its former publisher L. Gordon Crovitz points out today. But you wouldn’t know that from the breathless opening grafs of the exceptionally misinformed, substance-lite, and anonymous-quote-riddled piece.

Indeed, it takes a full eight paragraphs before the Journal’s reporters Jessica Vascellaro and Emily Steel move away from their gossip girl caricature “clash of personalities” narrative and get to — or at least near — the heart of the matter: Can someone running a venture fund edit a site covering the tech startup scene? This has nothing to do with personalities, either Mike Arrington’s or mine.

If only we could only find a way to also include the doofus-is-not-disparaging fired Yahoo CEO, Carol Bartz, this giant rumble would certainly be complete.

SECOND UPDATE: But, wait, what tweet through yonder smartphone breaks?

It is the Arrington, now seemingly taking a shot at Huffington about their clash of personalities.

Wrote Arrington on Twitter just now: “ok @ariannahuff. Let’s go ahead and talk about how this really played out.”

Oh, let’s — although part of me (and I know this might seem ironic) wants to make it stop.

Okay, maybe not, but longtime tech entrepreneurs Josh Felser and Dave Samuel will announce a new early-stage VC firm called Freestyle Capital, with $27 million in new investment funds.

Felser and Samuel co-founded Crackle, which was acquired by Sony for $65 million in 2006; and Spinner.com, which was bought by what was then AOL Time Warner for $320 million in 1999.

The pair said the fund builds on 27 preexisting start-ups they had already made investments in.

Although Felser and Samuel are announcing Freestyle at the TechCrunch Disrupt conference today, they don’t run any tech news site for AOL — so all should be well.

Here’s the official press release:

Veteran Internet Entrepreneurs Launch Freestyle Capital, a Venture Capital Firm Focused on Early Stage Startups Freestyle Capital Receives $27 Million in Fund I Close

SAN FRANCISCO — September 12, 2011 – Today, at TechCrunch Disrupt, the industry’s early-stage startup networking event, Internet technology veterans Josh Felser and Dave Samuel formally introduced Freestyle Capital, a new venture capital firm focused on seed and early stage investments in consumer and web-based enterprise technology startups. Felser and Samuel, serial Internet entrepreneurs who together co-founded both Crackle (acquired by Sony for $65 million in 2006) and Spinner.com (acquired by AOL Time Warner for $320 million in 1999), also announced that they have raised $27 million in a new fund closed from limited partners including Cendana Capital and Hall Capital. The new fund builds on a pre-existing portfolio assembled by Felser and Samuel.

Freestyle Capital will focus on providing early-stage startups with both funding and counsel — drawing upon the investment capabilities and real-world experiences of Felser and Samuel — to guide technology startups to the next stage of development. Freestyle Capital is looking for young companies with transformational business ideas presenting seed funding and early stage investment opportunities in the range of $100,000-$500,000.

To date, Freestyle has invested in more than 27 companies, including: GoInstant; Byliner; CrowdFlower; Get Satisfaction; Typekit; about.me (acquired by AOL); BackType (acquired by Twitter); and CoTweet (acquired by ExactTarget).

“Every time we make an investment decision, we draw upon our own deep entrepreneurial experience to unearth the critical success factors for each company — an approach fundamentally different from that of most VCs,” said Felser, co-founder of Freestyle Capital. “Immediately post-investment, we provide a hands-on approach that leverages the knowledge we’ve gained as successful startup CEOs in developing, marketing and leading web-based businesses. Partnering with entrepreneurs at the seed stage is the next best thing to actually being founders ourselves.”

Samuel, who launched his first start up at the age of ten, said: “Like the rest of the world, Josh and I have seen how Internet technologies can transform our lives — but we also know first-hand the long road it takes to get there. This experience is what really sets Freestyle apart from many other investors. With a practiced eye toward bringing solutions to market for real-world business applications, we are excited to ‘pay it forward’ for the newest technology innovators.”

]]> http://allthingsd.com/20110912/new-early-stage-vc-firm-freestyle-capital-launches/feed/ 0 http://allthingsd.com/20110911/in-this-episode-of-as-the-aol-turns-will-arrington-appear-at-techcrunch-disrupt/ http://allthingsd.com/20110911/in-this-episode-of-as-the-aol-turns-will-arrington-appear-at-techcrunch-disrupt/#comments Sun, 11 Sep 2011 19:52:05 +0000 Kara Swisher http://allthingsd.com/?p=119341

With the continuing negotiations between AOL and high-profile TechCrunch founder Michael Arrington likely to come to some conclusion soon, the big question remaining is whether he will appear at its flagship conference, TechCrunch Disrupt, which officially begins tomorrow.

Sources said that seems more likely than not, although the talks between AOL and Arrington are not resolved as yet and his appearance at the highly lucrative conference is part of a whole package.

But it seems unlikely that neither Arrington nor AOL CEO Tim Armstrong and content chief Arianna Huffington wants to damage TechCrunch Disrupt, which makes piles of moolah from sponsors and fees, attracts thousands of attendees, and where a plethora of promising start-ups compete with each other.

And, in fact, some of the slated speakers I have contacted have said that they have not been told of any changes in the program.

A hackathon of those entrepreneurs is now taking place before the main event, where well-known Silicon Valley players will be interviewed on stage by the staff of TechCrunch.

The conference is mostly run by TechCrunch exec Heather Harde, as well as the site’s leading editor Erick Schonfeld.

But, of course, TechCrunch Disrupt has starred Arrington, the larger-than-life blogger now turned venture capitalist.

That shift and how badly it was done is at the center of complex severance negotiations.

As I previously wrote, sources said the company has so far refused Arrington’s bold demand, posted on TechCrunch itself, to either give the popular tech news site “editorial independence” or sell it back to him.

As I wrote last week:

The situation between the popular tech blogger and top execs at the Internet company — which bought his site earlier this year — comes after a week of increasingly testy back and forth between them, after it was revealed that Arrington was starting his own $20 million venture fund called CrunchFund.

The move caused a media firestorm over the ethics and propriety of the move, which was followed by an ugly internal war at the company, with Arrington and TechCrunch staffers on one side and Armstrong and Huffington on the other.

(Full disclosure: Although no one cares what I think, I consider the deal appalling and wrote that it was a “giant, greedy Silicon Valley pig pile.” Now, it seems to be 56 percent piggier!)

After many confusing messages from AOL, Arrington was removed from his longtime job at TechCrunch and placed in its venture arm, after editorial objections from Huffington.

That had supposedly been the the plan until it all blew up, with reveleations about what the CrunchFund deal — which includes $10 million from AOL — meant to TechCrunch and its news gathering.

That seemed clear from a widely cited quote from CrunchFund investor and well-know Silicon Valley entrepreneur Reid Hoffman to me last week:

“TechCrunch will get some real deal flow from entrepreneurs that we would otherwise not see, because they have established a prominent position as the SV/Tech industry information feed. As many tech entrepreneurs read it — both within Silicon Valley and globally — and view the information news feed to be their target for announcing themselves to the world, CrunchFund will have access to deal flow to these diverse and early stage companies. Some of these companies will be the kind of early stage companies with billion-dollar potential that Greylock invests in.”

There you had it: No one can afford to be out of the deal flow in these competitive times, even if it means cutting corners and using a tech news site as fodder.

Arrington obviously has another view of the deal he struck with Armstrong and, sources said, wants his powerful tech news platform back. He has been talking to many Silicon Valley power players about the situation, said sources.

More to come soon from this Silicon Valley soap opera. And, hopefully, it will be a happy — well, happy-ish — ending.

(Full disclosure: AllThingsD also runs conferences that could be construed as competitive to TechCrunch Disrupt, although we both we seem to do just fine. In addition, Walt Mossberg and I are getting along like peas and carrots, although we vigorously disagree over the humongous talent of Barry Manilow.)

]]> http://allthingsd.com/20110911/in-this-episode-of-as-the-aol-turns-will-arrington-appear-at-techcrunch-disrupt/feed/ 0 http://allthingsd.com/20110908/what-bad-economy-three-big-silicon-valley-vcs-poised-to-haul-in-2b-in-new-fund-raises/ http://allthingsd.com/20110908/what-bad-economy-three-big-silicon-valley-vcs-poised-to-haul-in-2b-in-new-fund-raises/#comments Thu, 08 Sep 2011 13:15:21 +0000 Kara Swisher http://allthingsd.com/?p=118408

Three of Silicon Valley’s more prominent venture firms — Khosla Ventures, Redpoint Ventures and the Founders Fund — are nearing the closing of new funds that will total almost $2 billion.

This despite a bad economy, turbulent markets and lackluster venture returns of late. That said, limited partners looking for an investment edge apparently seem to still be adding more dough to the VC kitty.

Sources familiar with the fundings, in fact, said the raises have been much easier than previous ones.

Khosla has raised almost $2.4 billion since 2009, including $1.3 billion in 2010. Its fourth is now nearly completed, at just under that, which the firm had previously signaled in regulatory filings it planned to raise.

The third fund has been spent on cleantech companies, but also on early-stage high-profile Internet start-ups such as Square.

Redpoint will focus its fund — which sources said was $400 million — on growth opportunities.

Its last fund in 2010 was $400 million, too. It has invested that money in start-ups, such as Jumptap, Kabam and Pure Storage.

Lastly, the Founders Fund — with high-profile partners Peter Thiel and Sean Parker — is aiming at a $350 million fund with a $150 million “cushion” to raise more. Its last fund of $250 million was raised last year.

Founders Fund has recently made investments in Path, Azumio and Topsy.

]]> http://allthingsd.com/20110908/what-bad-economy-three-big-silicon-valley-vcs-poised-to-haul-in-2b-in-new-fund-raises/feed/ 0 http://allthingsd.com/20110906/give-me-back-my-baby-michael-arrington-trying-to-buy-back-techcrunch-from-aol-but-would-aol-sell-it/ http://allthingsd.com/20110906/give-me-back-my-baby-michael-arrington-trying-to-buy-back-techcrunch-from-aol-but-would-aol-sell-it/#comments Tue, 06 Sep 2011 18:57:26 +0000 Kara Swisher http://allthingsd.com/?p=116917

Here’s another interesting wrinkle to the ongoing saga of AOL, TechCrunch founder Michael Arrington and his nascent venture firm, CrunchFund.

Since the controversy erupted last week, Arrington has reached out to AOL CEO Tim Armstrong, as well as others in Silicon Valley, about buying back his popular tech news site.

Sources said Arrington needs funding to do so — irony alert! — and told them over the weekend that he planned to use his blogging bully pulpit to force AOL into giving up the site it bought for more than $25 million almost exactly a year ago.

But sources said — at this point — AOL is not inclined to sell the site, which has prompted Arrington to pen a blog post on TechCrunch, not-meant-as-a-joke-titled “Editorial Independence,” suggesting they do so.

Quelle surprise!

We’ve proposed two options to Aol.

1. Reaffirmation of the editorial independence promised at the time of acquisition. Given the current circumstances, that means autonomy from Huffington Post, unfettered editorial independence and a blanket right to editorial self determination. To put it simply, TechCrunch would stay with Aol but would be independent of the Huffington Post.

or

2. Sell TechCrunch back to the original shareholders.

Arrington used an image of the Spartans from, I think, the movie “300,” on the post. Memo to Mike: All the Spartans died in the end, however valiant. It goes without saying — this situation is not valiant and you are definitely not King Leonidas.

“It is at a stalemate, so this is the result,” said one person with knowledge of the pugnacious effort by Arrington to take back his baby.

Which, of course, he sold in the first place.

AOL has stated it will not allow Arrington to remain its editor or have “influence on coverage” while also doing a venture fund.

Thus, some of Arrington’s staffers, such as M.G. Siegler, have already been plowing the ground ahead of Arrington’s post.

Siegler, for example, penned a weepy diatribe about how unfair it all is and how different the site operates from slow-footed meanies at big media organizations such as the New York Times. The Times strafed Arrington in a David Carr column yesterday.

Wrote Siegler, in what can only be described as soap-opera fantastic: “TechCrunch is on the precipice. As soon as tomorrow, Mike may be thrown out of the company he founded. Or he may not. No one knows.”

Tune in tomorrow to see if AOL’s content chief and Arrington boss Arianna Huffington will use that gun in her pocket. Or will she use the razor-chiseled cheekbones of Armstrong to slice her new nemesis?

(Alls I can say to add to what I have already said, at this point: Good lord. But, wait, isn’t there a TechCrunch Disrupt conference next week to hawk and make it all about Arrington and not the entrepreneurs? This explains everything!)

While Siegler is trying to make it all sound as if it is so very unfair, since the site is presumably so very special, AllThingsD operates in a similar quick-edit way to TechCrunch — where I will underscore there are some terrific journalists.

But — because it is simply flat-out wrong on every possible scale — neither Walt Mossberg nor I would ever consider being editors of the site while also running a venture fund.

(In fact, it is now a standing rule at ATD that, if we ever did such an unthinkable thing — which of course we never would — our writers tell us we stink rather than praise us.)

Meanwhile, we’ll be busy breaking some actual tech news on this site, like here and here and here, while TechCrunch presumably faux-burns and AOL fiddles.

]]> http://allthingsd.com/20110906/give-me-back-my-baby-michael-arrington-trying-to-buy-back-techcrunch-from-aol-but-would-aol-sell-it/feed/ 0 http://allthingsd.com/20110903/viral-video-me-and-my-crunchfund-shadow-on-bloomberg-west/ http://allthingsd.com/20110903/viral-video-me-and-my-crunchfund-shadow-on-bloomberg-west/#comments Sat, 03 Sep 2011 15:33:07 +0000 Kara Swisher http://allthingsd.com/?p=116795

Here’s a video of an appearance I made on the Bloomberg West show yesterday about the controversies around TechCrunch founder and Editor Michael Arrington and his new early-stage venture fund called CrunchFund.

(Yes, that’s the genuine Mike puppet I was gifted when Loren Feldman ended his hysterical video spoof series on Arrington and other Silicon Valley luminaries.)

As I said in the interview and also in a testy post I did, TechCrunch owner AOL is a lot to blame here, especially in CEO Tim Armstrong’s impugning the ethically sound writers at the popular tech news site who don’t deserve this mess.

Here is the video:

]]> http://allthingsd.com/20110903/viral-video-me-and-my-crunchfund-shadow-on-bloomberg-west/feed/ 0 http://allthingsd.com/20110902/crunchfund-unethical-ventures-pigpile-partners-no-matter-what-you-call-it-its-business-as-usual-in-silicon-valley/ http://allthingsd.com/20110902/crunchfund-unethical-ventures-pigpile-partners-no-matter-what-you-call-it-its-business-as-usual-in-silicon-valley/#comments Fri, 02 Sep 2011 13:16:52 +0000 Kara Swisher http://allthingsd.com/?p=116354

Of course I have something to say about the news yesterday that AOL would be a key investor in a new early-stage venture fund being started by TechCrunch’s perpetually petulant editor Michael Arrington — with a big, fat and decidedly greasy assist from a panoply of Silicon Valley’s most powerful VC firms and angel investors.

Arrington has previously called me “chief whiner” — oooh, buuuurn, although fair enough, since I have compared him to an egomaniac turtle named Yertle in the past — about my nagging him over the importance of upholding standards of fairness and ethics in journalism.

So as not to let him down, let me begin the whining.

First, my initial reaction when I first heard about the deal: Ugh. Sigh. Hopelessly corrupt. Now 100 percent more icky! A giant, greedy, Silicon Valley pig pile.

I was upset.

By early evening, after my kids told me to chillax, my dark mood had changed to accept that the transaction — however profoundly distasteful to me — was part and parcel of the insidious log-rolling, back-scratching ecosystem that has happened in every other center of power in the universe since the beginning of time.

And so it goes in Silicon Valley.

In fact, the creation of a $20 million investment kitty that Arrington has dubbed CrunchFund is simply the formalization of a long-standing arrangement that has already been going on since he founded his popular tech blog.

That is to say, in which the basic standards of journalism are first warped by calling it newfangled truth-telling and then endlessly corroded by using a wily and unusually aggressive combination of favors and threats to extract, from start-ups and VCs in need of press, both exclusive access and information.

And now, inevitably, money.

This could have been a lot cleaner, of course, by Arrington simply resigning from TechCrunch, becoming a VC and perhaps starting a new blog where his agenda is much clearer, from which he could huff and puff away as he does with much entertaining gusto at real and (mostly) imagined slights.

There is certainly precedent for VCs blogging, including Fred Wilson, Brad Feld and Ben Horowitz. And, despite my criticisms about ethics, it is clear that Arrington is a talented writer whose unique voice would be even stronger if it was truly seen as separate from what has become a news organization.

But because of his obvious need to be the center of attention — requiring the ermine kingmaker mantle and foisting his patented I’m-here-to-tell-it-like-it-is attitude on us all — that appears to be impossible.

(By the way, I await Arrington’s usual inane rant about the fictional conflicts of interest related to my gay Google marriage anytime now in 3 … 2 … 1, always and purposefully leaving out the pertinent facts that I can only wed one person, get no financial benefit and am also a prominent critic of the scary search behemoth, while he can make a badillion questionable and grossly tangled investments.)

Personal annoyances aside, what’s most interesting here is the group of Silicon Valley power players who lined up to bow and scrape and then hand over a small pile of dough to the blogger who would be king.

They include: Sequoia Capital, Redpoint Ventures, Kleiner Perkins, Greylock Partners, Austin Ventures and Accel Partners, as well as individual investments from partners at Benchmark Capital and Andreessen Horowitz, entrepreneur Kevin Rose and DST Global’s Yuri Milner. And, of course, the inevitable Arrington BFF Ron Conway.

Holy googa mooga, that would be, well, everyone, except Ashton Kutcher and Justin Timberlake (who will surely appear soon enough).

As one person also pointed out to me, I don’t recall this many competing VCs investing in one company, let alone another venture fund.

It goes without saying that the reasons they all decided to jump in this fetid pool with abandon are quite varied, if all entirely compromised.

One investor told me — off the record, naturally — that he thought it would be an interesting experiment to see what happened and so he wanted in, especially since everyone else was doing it.

Another well-known VC said that there is no downside to being financially affiliated, especially in attracting talent to its start-ups, with Arrington and, by extension, TechCrunch.

The well-respected Reid Hoffman of Greylock was the only one brave enough to talk on the record, explaining the reasoning pretty clearly:

“Techcrunch will get some real deal flow from entrepreneurs that we would otherwise not see, because they have established a prominent position as the SV/Tech industry information feed. As many tech entrepreneurs read it — both within Silicon Valley and globally — and view the information news feed to be their target for announcing themselves to the world, Crunchfund will have access to deal flow to these diverse and early stage companies. Some of these companies will be the kind of early stage companies with billion-dollar potential that Greylock invests in.”

There you have it: No one can afford to be out of the deal flow in these times, even if it means cutting corners.

While TechCrunch’s owner, AOL, said Arrington will no longer be managing editor, with only writing duties at the site he dominates and with no editorial control, Hoffman’s use of TechCrunch for CrunchFund was accurate, because in the eyes of many they are interchangeable.

That’s due to the fact that Arrington still breaks or is clearly the source for important stories on the site and, more importantly, is the big swinging dude who attracts all the eager entrepreneurs to the party. He is the fulcrum of that site, even as it has grown.

And so it will remain, I am guessing, no matter how much AOL insists it will not be so, because the easy questions pile up quickly:

Will Arrington keep doing what are clearly news stories, for example, even though he protesteth too much — as he did in the New York Times yesterday — that he is not a journalist?

And, if so, is it right for him to do so given his insider status, creating a nonparity of sourcing and crystal clear conflicts of interest?

Most of all, can he resist his palpable love of news-breaking and scoops, even if he gets them in ever more unseemly ways?

As if to make it all pretty, Arrington told reporters yesterday that he has put a clause in his limited partnership agreement so he can report on anything he likes, and in any way, about his investors and their companies, however confidential, except those he invests in.

O joyous day! Freedom of the press is preserved and our sacred First Amendment can breathe a sigh of relief, now that it is enshrined in an unholy blogger-VC LP agreement.

After pausing for a moment so that Thomas Jefferson and Edward R. Murrow can stop spinning in their graves, you can go down this road for many increasingly bumpy miles, which only becomes more twisted and confusing as it continues.

I finally talked to one investor in CrunchFund, who said simply and honestly: “It’s not that much money, so who cares?”

Indeed, who does care anymore about crossing what had long been very bright lines in journalism and, if you want to get all cosmic, in life?

Obviously, most of all, not AOL, or its CEO Tim Armstrong, or its head of content, Arianna Huffington. The pair, for whatever reason, decided to make a startling exception for Arrington from a rule that explicitly bars reporters at its media units from investing in the companies they cover.

That happened after he recently did a complete 180 from a previous decision to stop investing and jumped right back in, leaving Armstrong and Huffington to clean up the ethical mess.

They only made it worse, with their decision to throw journalism under the bus by letting Arrington do as he pleased, while touting how important it was for other content sites at AOL to remain more pure.

In the spirit of full disclosure, these kinds of ethical lapses are endemic these days in journalism. Case in point: The appalling phone-hacking controversy taking place at News Corp.’s News International unit in Britain.

While I cannot speak for Dow Jones, I can say that the behavior in another News Corp. property certainly takes its toll on those who adhere to higher standards at the company, especially when it comes to morale.

Thus, I can imagine how others feel at AOL — including those you-know-who-you-are silent ones at TechCrunch — who can’t and, more to the point, wouldn’t make the deals Arrington has been allowed to get away with.

It is not a good feeling, I can assure you.

And, while I have not spoken to her about it, I’d imagine that Huffington cannot be thrilled to be pushing for better journalism at AOL and trying to burnish her cred by hiring some top reporters, while also having to deal with this.

That’s okay, because Armstrong was perfectly willing to do the awkward pretzel-twist needed to explain away the controversial situation, also in an interview with the Times:

“TechCrunch is a different property and they have different standards. We have a traditional understanding of journalism with the exception of TechCrunch, which is different but is transparent about it.”

In this case, Tim, I am sorry to inform you that transparency is a complete canard and is more likely to end up covering up a lot more transgressions than it ever will reveal.

And, essentially and lazily sloughing it off by saying, “That’s just Mike being Mike,” is not going to cut it, at least not with me.

Not that any amount of tsk-tsking about it matters, I suppose, as Arrington finally gets his fervent Pinocchio-on-a-star wish to be a real-boy VC, can add yet another tainted buck to the pile of billions his venture pals already have, and just call it another typical day in Silicon Valley.

Still, when you are the designated whiner-in-chief, it is pretty much all one can do.

]]> http://allthingsd.com/20110902/crunchfund-unethical-ventures-pigpile-partners-no-matter-what-you-call-it-its-business-as-usual-in-silicon-valley/feed/ 0 http://allthingsd.com/20110411/vc-fundraising-has-best-start-since-2001/ http://allthingsd.com/20110411/vc-fundraising-has-best-start-since-2001/#comments Mon, 11 Apr 2011 19:30:21 +0000 Alistair Barr http://voices.allthingsd.com/?p=38767 The U.S. venture-capital industry had its best fund-raising start since 2001 as three firms dominated, Thomson Reuters and the National Venture Capital Association said Monday.

Thirty-six U.S. venture-capital funds raised more than $7 billion in the first quarter of 2011. That’s up 76 percent, by dollar commitments, compared with the first quarter of 2010, which saw 44 funds raise $4 billion, according to Thomson Reuters and the NVCA.

Bessemer Venture Partners VIII raised $1.6 billion during the quarter, while Sequoia Capital 2010 raised $1.3 billion and J.P. Morgan’s (JPM 46.97, +0.13, +0.28%) Digital Growth Fund raised $1.2 billion.

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]]> http://allthingsd.com/20110411/vc-fundraising-has-best-start-since-2001/feed/ 0 http://allthingsd.com/20110406/andreessen-horowitz-bags-new-fertilizer-for-growth-stage-companies/ http://allthingsd.com/20110406/andreessen-horowitz-bags-new-fertilizer-for-growth-stage-companies/#comments Wed, 06 Apr 2011 19:08:37 +0000 Voices http://voices.allthingsd.com/?p=38617 Venture capital powerhouse Andreessen Horowitz, seeing more opportunities among companies in their high-growth Wonder Years, today announced creation of a $200 million fund for discretionary co-investment in tandem with its $650 million Fund II. One distinguishing feature: because the new cash cache will be piggybacking on work done for Fund II, the firm will charge no management fee.

]]> http://allthingsd.com/20110406/andreessen-horowitz-bags-new-fertilizer-for-growth-stage-companies/feed/ 0 http://allthingsd.com/20110310/exclusive-former-aolers-steve-case-and-ted-leonsis-raising-400-million-growth-equity-fund/ http://allthingsd.com/20110310/exclusive-former-aolers-steve-case-and-ted-leonsis-raising-400-million-growth-equity-fund/#comments Thu, 10 Mar 2011 19:58:38 +0000 Kara Swisher http://kara.allthingsd.com/?p=41533

Steve Case and Ted Leonsis are bringing their old AOL band back together once again, this time by raising a $400 million growth equity fund.

The pair, the legendary top execs who rocketed AOL to the top of the Internet business in the 1990s, are now making the rounds in New York and elsewhere to pitch their new investment vehicle, sources said.

The money raised will be part of an entity called Revolution Growth, which already exists within Case’s larger Washington, D.C.-based company called Revolution.

While both Leonsis and Case have done a lot of investing in the Web 2.0 space both together (Revolution Money) and apart (the Groupon and LivingSocial social buying sites, respectively), this is the first time they are creating a more formal investment partnership.

Another former AOL exec, Donn Davis is the third partner in Revolution Growth.

Sources said its focus will be on companies just beyond the venture stage to bring them to scale.

]]> http://allthingsd.com/20110310/exclusive-former-aolers-steve-case-and-ted-leonsis-raising-400-million-growth-equity-fund/feed/ 2 http://allthingsd.com/20110208/lerer-ventures-considers-new-fund-with-hippeau-addition/ http://allthingsd.com/20110208/lerer-ventures-considers-new-fund-with-hippeau-addition/#comments Tue, 08 Feb 2011 18:17:51 +0000 Kara Swisher http://kara.allthingsd.com/?p=40488

One of the more interesting pieces of news that got pushed deep down in stories in the noisy swirl around AOL’s $315 million acquisition of the Huffington Post was the move of its CEO Eric Hippeau back to the investor side.

He’ll be going to Lerer Ventures, which is run by HuffPo co-founder, chairman and major investor Kenneth Lerer.

(In case you wondered: Yes, everyone is interconnected.)

Before landing at HuffPo in mid-2009, Hippeau was a high-profile venture capitalist at SoftBank Capital for many years, starting with his involvement in the legendary $100 million investment in Yahoo at its start.

Hippeau went to SoftBank Capital after selling Ziff-Davis to its parent SoftBank Corp. for $2.1 billion in 1995.

Now he is headed to Lerer, where Hippeau has been an adviser. It which has been run by Lerer and his son Ben–as well as VC and entrepreneur Jordan Cooper–as an angel investing at early-stage seed level.

About a year ago, the New York-based investment fund raised $8.5 million, all from friends, and has focused on 35 start-ups in the city.

Those have included GroupMe, a group texting service, and ad service AdKeeper.

Now, with the addition of Hippeau as a general partner, while still spending down the initial fund, Lerer Ventures is considering a second fund of up to $50 million to allow it flexibility to invest in later stages.

That’s an increasingly common strategy of late, most prominently at Andreessen Horowitz.

“I am really glad to be getting back into investing, since the New York area is especially vibrant at the moment,” said Hippeau in an interview today, who noted that Lerer Ventures also has some investments in Silicon Valley. “And we are really determined to look at changing the way funds are organized.”

And now that he’ll not have a job with the AOL buy–”It has a very good CEO in Tim Armstrong,” joked Hippeau–and having just also stepped down from the Yahoo board, he will have plenty of time to consider all that.

Hippeau listed social, mobile and commerce as big investment arenas, as well as companies related to tablet devices.

“At the Huffington Post, we could see the changes happening to how we distribute our content were becoming profound,” Hippeau said. “It’s a completely different experience.”

I also talked to Ken Lerer, who said that the fund–started off pretty simply–will be trying to define itself more in the coming months before fundraising begins.

“Ben and Jordan are especially plugged into the New York scene–these start-ups were created by their friends,” he said. “And Eric and I bring a different skill set and perspective on top of that.”

Lerer also expressed interest in commerce, as well as local and real-time technologies.

“While it is always an interesting time on the Internet,” he said, fresh from the AOL sale of the HuffPo, in which he was the largest individual shareholder. “But right now is a really interesting time.”

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