An open letter to Mike Arrington: Please stop investing in startups | Hacker News Reader

An open letter to Mike Arrington: Please stop investing in startups

danshapiro.com

117 pointsdanshapiro48 comments

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.

MG stated in the comments of the disclosure piece Mike ran that other than the small amount of aol stock he received during the TC sale/becoming an aol employee, he doesn't hold any interests.

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).

"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."

What makes you think that?

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.

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.

Not defend either JC or MA..but when you are sued by someone you probably are told my your own lawyer not to go to events held by the person suing you..

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.

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".

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.

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.

why is there any onus upon techcrunch to be "fair"? the way i see it, arrington has never even pretended to be anything other than a blowhard; he's just a blowhard who has managed to interest a lot of people in what he has to say. you could argue the whole "with great power comes great responsibility" thing, but from what i've seen of most techcrunch-style blog-journalism, it really doesn't work that way.

You're right. That's actually one of the things I admire about TC. When I spoke of fairness, what I meant was my personal perception and preference. He isn't required to be fair by any means, but I require fairness to not get fed up and stop reading. I should have clarified that in my post.

>Compare the coverage of Quora versus StackExchange, for example.

Quora made it to regular press, dailies, TV tech news, etc. but I've not personally seen SE in those media.

True, but it makes me wonder if SE would have the comparable coverage on those media if it got as much push as Quora has.

(I don't think that the two sites should be directly compared, btw -- I was just noting that they had been whenever SE was mentioned.)

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.

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

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.

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.

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

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.

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?

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.")

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.

>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.

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.

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.

There are things of varying subtlety in HN explicitly designed to favor YC companies. HN's YC bias is not hidden.

Yes, http://searchyc.com is something that is passed on by word of mouth

I don't follow.

That is not a YC project. From the bottom of the home page

SearchYC.com is not affiliated with Y Combinator in any way, shape, or form.

Hacker News is an amazing way to market YC. Notice how it is a subdomain? He could have easily changed it to hackernews.com or something but why? It serves as a great way to get the word out about YC.

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

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.

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.

As such, I'd be surprised if Arrington's angel investments didn't run afoul of AOL's ethics policies. ... Basically, I think he wants AOL to fire him.

Nah, I believe him when he says he wants to stick around, esp because "they pay [him] good money" (his words).

When it comes to contracts and policies, everything is negotiable and open to exceptions if you have the clout. So much in business strategy is about identifying and using leverage.

I've had some fairly public interactions with Mike in the comments of his "disclosure" piece, and my guess is he'll just keep on doing both and aol will maintain the status quo so long as TC continues to get the traffic and make the numbers.

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.

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.

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.

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.

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.

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

As a self-described loyal reader of TechCrunch, I think it's reasonable to believe that the author of the post does not "expect" Arrington to do anything based on his open letter. He'd just prefer him not to invest in start-ups because he doesn't think it's good for TechCrunch and the quality of journalism that appears there. I agree completely.

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.

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.

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

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

I'm fed up of hearing peoples whiney opinions.

Then don't come to a PUBLIC message board.

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