Bloomberg Begins Fund to Invest in Start-Ups

On Wednesday, Bloomberg will announce the formation of Bloomberg Beta, a $75 million venture capital fund, which has already begun using Bloomberg L.P.’s money to place bets on young start-ups like Codecademy, a Web site that provides online coding tutorials, and Newsle, a Web service that alerts users to news about friends.

It is not the first time that Bloomberg L.P. has put its money in technology companies. It is a limited partner in Andreessen Horowitz, a venture capital firm with investments in technology companies like Facebook and Twitter. And until shutting it down recently, Bloomberg also ran its own incubator, Bloomberg Ventures, which helped build new businesses that could later be folded into Bloomberg products.

But Bloomberg Beta is the first time that Bloomberg L.P. will reap profits from direct investments in some of the technology companies that its news operation covers.

It is already an awkward time for the company, which is under fire because its reporters used Bloomberg’s financial terminals to snoop on companies they covered, including Goldman Sachs, and the fund raises questions on journalism ethics.

“This puts Bloomberg News’s credibility at issue,” said Edward Wasserman, dean of the Graduate School of Journalism at the University of California, Berkeley. “Reporters will not only be held to standards of accuracy and the like, but scrutinized for evidence of self-dealing and self-interest, which can be toxic to a news organization.”

Bloomberg Beta’s partners say they will operate as a separate legal entity from their parent company, which is Bloomberg Beta’s sole investor. The firm will be based out of Bloomberg’s offices in San Francisco, where many of its technology reporters are also based.

Bloomberg has been aggressively expanding its technology news coverage in recent years, hiring technology reporters and editors from The Wall Street Journal and The New York Times, and last month it doubled programming hours for Bloomberg West, a television news show on tech that regularly hosts executives and start-up founders like Jack Dorsey, a co-founder of Twitter and the payment service Square, and Elon Musk, the co-founder of PayPal and Tesla.

A Bloomberg News official said the company would follow existing rules on conflicts of interest, which forbid the company to cover itself. In cases where reporters cover companies or investment firms in which Bloomberg has interests, investments will be disclosed in disclaimers.

The New York Times Company has invested in some technology start-ups, lists them online and discloses the stakes in related coverage.

Mr. Wasserman questioned whether Bloomberg Beta’s access to technology executives might give Bloomberg News a competitive advantage in its reporting, and whether those executives might be willing to accept an investment from the firm, over others, with the hope that they might get more positive coverage in exchange.

Similar concerns were raised after Michael Arrington, the founder of TechCrunch, a popular technology blog now owned by AOL, announced the formation of Crunchfund, a venture capital firm. Mr. Arrington subsequently resigned from TechCrunch (though he recently surfaced as a columnist).

Such worries also came up when a former TechCrunch writer, Sarah Lacy, announced that she was beginning a new blog, called PandoDaily, to cover start-ups using money from prominent start-up founders including Peter Thiel of PayPal and  Tony Hsieh of Zappos and venture funds including Accel Partners’ Seed Fund and SV Angel, a prolific investor in early stage start-ups.

Roy Bahat, the head of Bloomberg Beta, said the firm was set up as a separate legal entity in part to anticipate such fears.

“If an entrepreneur wants Bloomberg Beta’s money because they think they’ll have a higher chance of getting covered by a Bloomberg journalist, then they shouldn’t take our money,” Mr. Bahat said on Tuesday. “We were set up to have confidentiality protections, and we will only share when appropriate.”

“The way Bloomberg reporters look at me should be the same way they look at any other outside investor or entrepreneur,” he added. Mr. Bahat said he was first approached by Tom Secunda, Bloomberg L.P.’s co-founder, and Daniel L. Doctoroff, its chief executive, who, he said, “wanted a window into the world of start-ups.”

Mr. Bahat, who previously ran IGN Entertainment, an online media company previously owned by News Corporation, quickly began putting together a team of investors. He brought on Karin Klein, head of Bloomberg’s new initiatives, to run Bloomberg Beta’s East Coast operations, and James Cham, a former principal at Trinity Ventures, a Sand Hill Road venture capital firm.

Together, the three have already invested in Nodejitsu, a provider of cloud computing; Errplane, which monitors app performance, and ProsperWorks, which makes employee management software. It has also invested in MkII Ventures, a small venture capital firm run by Ron Palmeri, an early investor in the technology behind Google Voice.

“This would have been crazy a decade ago,” Mr. Bahat said. “But as companies try to figure out how to buy innovation, this is one experiment in which a company is trying to figure out a new way.”

Article source: http://www.nytimes.com/2013/06/05/technology/bloomberg-begins-fund-to-invest-in-start-ups.html?partner=rss&emc=rss