Mr. Siegler. (Photo: LinkedIn)

A year and a half after bailing on the blog life during the Great TechCrunch Conflagration of '11, MG Siegler is wading deeper into the world of venture capital. He announced today that he's heading to Google Ventures as a general partner. He'll join Kevin Rose and Wesley Chan, focused on seed and early-stage investments.

Mr. Siegler said he'd "continue to work closely with CrunchFund" on investments they've already made as well as writing the occasional column for TechCrunch, because apparently that place is actually the Hotel California. But perish the thought of his revealing confidential info from inside the notoriously secretive GOOG:

"Obviously, there will be some knowledge that I become privy to that I won’t be able to share — but that’s not any different than it has been with many of the startups I’ve worked with over the past 19 months. The difference now is that some of that knowledge will be about one of the most successul startups of all time: Google."

He closed on a contemplative noted, informing readers of his Tumblr: "Yes, they’re letting an Apple fanatic into the building — wild, I know. But as I said, I left the reporting path long ago. I’m on a new path now. Don’t worry, I’m bringing my iPhone with me." Whew, what a relief.

Mr. Lyons traced the start of Apple's whisper (in a reporter's ear) campaign back to TechCrunch blogger, investor, and Apple stock holder MG Siegler, who called the time it takes to pull an all-serving computer out of his own pocket "insane." That was followed by an impromptu treatise on the iWatch's ability to "fill a gaping hole in the Apple ecosystem" from Cupertino's former interface designer.

Rumors graduated to reports with Mr. Bilton repeating the same Dick Tracy reference as Mr. Siegler, except with better access:

Bilton even got an interview with the CTO of Corning Glass Technologies, the company that supplies Apple with glass for the iPhone. The Corning guy doesn’t talk specifically about making a watch, but he says that it could be done. What’s noteworthy here is that this is one of Apple’s big suppliers talking to the press, on the record, about something that brushes up against Apple. If you know anything about Apple you know that this doesn’t happen without Apple’s permission. Don’t believe me? Go try to get an interview with Foxconn, about anything, and see if they’ll do it without Apple’s permission.

Wouldn't you know, things are already looking up.

That's not the only theory as to why we've suddenly been treated to details about futuristic new product. Watching the iWatch also coincides with Pebble buyers--who fronted the Kickstarter project $10 million--finally receiving their smartwatch orders.

https://twitter.com/AlexJamesFitz/status/300984700808347648

Buyers who haven't yet received Pebble arm candy are already considering jumping ship . . . for an unavailable product.

It's hard to imagine Apple is seriously threatened. Ben Kessler, Crowdtap's director of marketing, says Pebble is fun, but still feature light: "Just controls music and shows incoming calls and SMS on iOS." Mr. Bilton predicts that "Pebble would be to iWatch as Kindle was to iPad."

But status-obsessed startup types still need something to Instabrag about. So behold! The unboxing is upon us. (Fuelbands are so 2012.)

(Photo: Instagram/Mazy)

Airbnb Is a Belieber Early this week, CEO Brian Chesky tweeted out a photo of Justin Bieber, whose startup cred apparently extends to Airbnb renter. The Instagram shot was taken by Mazy Kazerooni, cofounder of #DominateFund, Ben Parr's still hush-hush, celebrity-focused micro-VC. Gee, wonder who their LPs are?

Friday flashback This week the revamped Digg got an unexpected celebrity thumbs-up: Fred Durst of Limp Bizkit fame (infamy?) tweeted at developer Robert Tolar Haining, "I love Digg. Great job and beautiful interface." "Why thank you sir!" Mr. Haining replied, because what else are you going to say when Fred Durst compliments your UI?

Curtain's up This week, Facebook sibling/musical theater devotee Randi Zuckerberg attended and spoke at TedXBroadway. More importantly: She got to meet Lt. Sulu himself, George Takei:

With @georgetakei at #TEDxBroadway! He was so great talking about theater & social media, I don't even have to speak! twitter.com/randizuckerber…

— Randi Zuckerberg (@randizuckerberg) January 28, 2013

Not even gonna front like we aren't jealous.

Devastating It seems Monday was a rough day in the Business Insider office. We speak not of Henry Blodget's regaling the Internet with tales of his air travels, nor of the site's tussle with the Awl over the nature of parody. No, we speak of the fallout from Sunday's episode "Downton Abbey." "Still kinda shaken by last night’s Downton," tweeted deputy editor Joseph Weisenthal. "Sybil?" Mr. Blodget responded with understanding and sympathy, before adding that it had been "brutal."

It's hard but we'll all get through this somehow, just like the Granthams. Stiff upper lip!

Panty Drop Off Softbank principle and devilishly stylish VC Nikhil Kalghatgi got a little surprise in the mail this week. Turns out some silly prankster decided to send him "3.9 kg of panties." Though he declined to reveal just how many pairs of panties equal 3.9 kg, he invited one lucky user to DM him on "Thonger, the all panties Twitter." Sassy.

(Photo: Twitter)

It's all Greek to me I don't think that word means what you think it means.

(Screenshot: Twitter)

The Coworker Is Right WeWork resident Asi Lang guessed the right price on stage with Drew Carey, while his fellow coworkers watched on TV from 175 Varick Street. Between this and all the Foursquare questions on "Jeopardy," game shows seem to have a Silicon Alley bias.

Oh you fancy huh Appcelerator head of partnerships and occasional Betabeat columnist Spencer Chen has some sick Super Bowl plans. Too bad TechCrunch columnist MG Siegler has better ones. Suddenly we feel gloriously populist for our plans to watch it in our PJs on a normal-sized TV.

(Photo: Tumblr)

Mr. Siegler. (Photo: LinkedIn)

The blogosphere is a brave new news world, but it's generally assumed that blogs that report the news adhere to basic journalistic standards—like not deliberately inserting bits of misinformation into their virtual pages. Right?

Former TechCrunch blogger MG Siegler took a dig at bloggers who rewrite others' reporting. "I used to love to plant one really weird bit of random information (sometimes even false) into stories to catch the rewrites," he tweeted earlier today. There's that TechCrunch swagger.

@marcoarment I used to love to plant one really weird bit of random information (sometimes even false) into stories to catch the rewrites.

— MG Siegler (@parislemon) July 5, 2012

The tweet was in response to developer Marco Arment's comment on the coverage resulting from his blog post about a bug in Apple's App Store. The story was first reported by The Verge, then re-reported by Mashable, and merely rewritten by Gizmodo and Betabeat. While rewrites are endemic in the blogosphere, deliberately misleading or confusing readers in order to play gotcha with your fellow news writers seems dicey. It's the same reason most major media outlets hate April Fool's Day—if you want your readers to trust you, it's risky to write anything untrue unless it's an obvious joke.

Mr. Siegler was on vacation in Paris and did not immediately respond to an email asking for comment. TechCrunch co-editor Alexia Tsotsis did not immediately respond to an email, nor did former TechCrunch editor Erick Schonfeld. "I think he's mentioned doing it before. Innocuous stuff that would catch out anyone who claimed they had their own source. Frankly that harks back to the days when TC was a comparative ethical utopia against what it is today," the ever-available TechCrunch alum Paul Carr wrote in an email. "I think it was stuff like 'I'm hearing it'll have a six inch screen' as opposed to seven. Yeah, I wouldn't do it but, again, on the grand scheme of things..."

UPDATE: Ms. Tsotsis responded to Betabeat by email: "So I don't know which specific posts MG is referring to here, but I'm sure the 'random' pieces of information are more like typos or skews on a range of numbers (like a valuation being between $20m-$30m as opposed to $25m) versus outright, blatant intellectual dishonesty. MG cares too much about being right to pull stuff like that."

Mr. Siegler also responded in a post on his own blog.

LaToya Drake, an AOL communciations rep, declined to comment. "We don't comment on former employees, in particular, what they're tweeting," she said. But would it be against AOL's policy to include "random information" and, or "misinformation" in posts on TechCrunch? "We can't comment," she said, and pointed to AOL's terms of service, which includes this disclaimer: "For general information, discussion, and entertainment purposes only and we make no representations or guarantees about the truth, accuracy, or quality of any content."

For the record, inserting "random information (sometimes even false)" into posts is verboten at Betabeat. We surveyed a few tech blogs blogs. "Hell yes it would be against our policy," said Abraham Hyatt, managing editor at ReadWriteWeb. "We definitely don't publish false information in our posts! As to posting things just to catch out other blogs, that's not something ReadWriteWeb focuses on," echoed founder and editor-in-chief Richard MacManus. When asked if this was kosher at The Next Web, U.S. editor Brad McCarty responded "no." "Absolutely not," said Danny Schreiber, managing editor of Silicon Prairie News. When asked if publishing "random information (sometimes false)" would go against GigaOm's policy, executive editor Ernie Sander told Betabeat, "Yes, it would go against our policy -- and the person who did it would probably be fired." Editor-in-chief Joshua Topolsky concurred that "Yes it would," be against The Verge's policy as well.

"Yes, that would absolutely be against our policy," said Dylan Tweney, executive editor of VentureBeat, "Our job is to 'seek truth and report it,' to quote the SPJ [Society of Professional Journalists] (which we do)."

"I can’t fathom what 'random information' is. The idea of putting false information in a post is also something I can’t fathom," New York Times technology editor Damon Darlin wrote in an email. "Planting false info in stories to catch non-linkers? Both unethical and pathetically petty," said Kara Swisher of AllThingsD.

Mr. Webb

Bubbles bubbles bubbles! The talk continues. Last week the anti-bubble camp was in the ascendency. First we had a massive bubble debate on Branch.com (disclosure: I am an investor in Branch), featuring some of the best minds on the internet: Anil Dash, Dave McClure, Paul Kedrosky, Chris Sacca, Michael Arrington, MG Seigler and more. The rough consensus? No bubble.

In wrapping up the Branch debate, Seigler pointed to First Round Capital’s Josh Kopelman, and his hilarious bubble post - from 2007, no less - mocking those who continuously cry bubble, and failing to grasp the transformational power of the internet. A fair point.

Next we had Business Insider Henry Blodget’s presentation State of Startups 2012 presentation, subtitled “No, it’s not a bubble.” Many charts, graphs and points followed laying out why the bubble doesn’t exist.

I must confess, however, I’m in the pro-bubble camp, and while reading the Branch debate, I found myself jumping up and down with counter arguments on why we actually are in a bubble. And, since I’ve taken a two week vacation from this column, I figured I’d come back with a vengeance, and cogently lay out all the arguments and counter arguments.

I’ll start off by promising the anti-bubble posse that I will barely mention Instagram at all, and when I do, it will be only in a tangental manner. I promise.

What is a bubble?

The definition of a bubble is an important part of this debate. Chris Dixon expresses justified annoyance at this when he says “A bubble is a financial event. I don't understand people who try to discuss it without bringing financial evidence into the picture.” This is a valid point.

Economists generally agree that three things must be present for a bubble to exist: (1) high trading volumes, (2) prices that are different from their “intrinsic values,” and (3) that said difference between prices and intrinsic value must be considerable.

The Wall Street Journal puts it thusly: “Bubbles emerge at times when investors profoundly disagree about the significance of a big economic development, such as the birth of the Internet.”

Built into that definition are our key three items: disagreement would indicate considerable variance in price, and a big economic development implies high trading volumes. "The internet" or "the railroads" are big economic events. And because they are big events, there will be a lot of trading around them.

What a bubble is not

Just as important is what a bubble is not. A bubble doesn’t have to be in the stock market. Tulip Mania, the first bubble, had nothing to do with stocks. Subsequent examples abound. Many of the anti-bubble defenders base their arguments on metrics around the publicly-traded tech companies, talking about their P/E ratios for example. The P/E ratios of publicly-traded internet companies, such as LinkedIn, are within normal parameters right now. This, however, has nothing to do with "ALL" Internet companies, only the ones that are publicly-traded. No one realistically believes the bubble is in public companies, and the definition of a bubble does not require the bubble to be in publicly-traded companies.  Any arguments against a bubble that solely rely on P/E ratios of public companies aren't really relevant and indeed help obscure the true picture.

Additionally, a bubble is not tied to the economy as a whole. Joseph Schumpeter had a notorious aversion to looking at large economic trends when trying to discern what was really going on. He said “It is, therefore, misleading to reason on aggregative equilibrium as if it displayed the factors which initiate change and as if disturbance in the economic system as a whole could arise only from those aggregates.” (Look to p 36 here).

Economist Carlota Perez, something of a hero of Union Square Venture’s Fred Wilson, takes the point further, stating that bubbles have nothing to do with the economy as a whole. “It is not even likely that the turbulent process by which new paradigms are assimilated should lead to regular up an down trends in the economy as a whole.” (Page 36, of her seminal work Technical Revolutions and Financial Capital).

These are both important points, as many of the arguments against a bubble point to metrics from the stock market as evidence for the lack of bubble. Fact is, economists don’t care whether or not a bubble is in the stock market or trends with or against the larger economy.

It should also be said that bubbles have nothing to do with many of the things we hear about - anecdotal evidence of “founder friendly” terms, bankers going into tech, a bajillion ripoff tech companies managing to get funding, lavish parties, kid founders, etc.

Why we’re in a bubble

So, then, it shouldn’t be that hard to see if we’re in a bubble, right? If our three criteria our met, we’re in one. Bob’s your uncle.

First, I’d posit that this is not a “dot com” bubble. I believe the bubble we’re in is a social/mobile bubble. I say this for a number of reasons: social/mobile companies have higher valuations than many of the other tech companies out there, and they garner considerably more press. It’s easy for us to think of the entire dot com sector, thanks to the previous dot com bubble, but in fact we have several sub-markets now. When Chris Dixon says “Instagram aside, there is SUBSTANTIAL revenue and even profits being generated by a much larger # of companies than ever before,” he is generally mixing all tech companies together. There are indeed several tech companies producing substantial revenue. But what percentage of social/mobile companies are?

Let’s look at those three pillars of the definition:

Trade is at high volumes
Social mobile companies are proliferating. Many are getting invested in. TONS of them. We all know this. We see new deals every day on Techcrunch, VentureBeat, Betabeat, etc. Perusing the Branch discussion, everyone agrees there’s some “froth” at the early stages for “certain” types of companies (i.e., social/mobile).

But all this is, of course, subjective. So let’s look at Blodget’s empirical data. Despite some blurring at the beginning, in his Anti-Bubble presentation, Blodget points out VC investment in tech is increasing, now, even in a down economy.

Prices are “considerably at variance to intrinsic values.”
So let’s turn our attention to pricing. There are two parts of this equation: (1) considerably at variance and (2) intrinsic values. Let’s go one by one.

(1) The very existence of a plethora of heated discussions on bubbles should be enough evidence that investors profoundly disagree. The tepid IPO market vs. the number of companies aiming to IPO, along with their substantial number of backers wishing for the same thing, should indicate two parties who substantially disagree on value, considerably.

(2) “Intrinsic value,” of course, is a bit more complicated. This has always been the sticking point for any educated bubble conversation. The tech sector has produced myriad companies that operated for years without revenue that eventually went blockbuster: Google, Amazon, Facebook, etc. Revenue, then, is only part of the equation. The trick is to figure out what else matters.

Intrinsic Value is defined by economists as the current and projected future value, marked to the present, of an asset. It is the “actual” value vs. the “market” value (and, thus, Facebook’s $1B purchase of Instagram is moot. That is a market value). This also means that if revenues are currently at zero, but future revenues are projected to be high, the current valuation is positive. So, then, despite zero present revenues, a company can have intrinsic value.

Opinions vary, however, on how to calculate this intrinsic value, since it relies solely on unknown future revenue. Is it the next instagram? Or a failure? It could be either. Mark Andreessen suggests factoring in the likelihood of the big win, thus adding a percentage multiplier into your calculations.

So let’s do that.

It is my position that many, if not all, of these companies are projected to earn their revenue from advertising. There are exceptions, like Zynga, but by and large, most of these companies are expected to make their money off of advertising. I have written extensively in the past about the finite size of the global ad market, and how we can only support 9 more google-sized companies.

There are about 3,500 startups funded every year. Delve into the stats at that link and you’ll see 1,000 of them are new startups in internet or media. The online ad market in the US is about $40B. The math there is $40 million potential for each new startup (you could complicate this by saying 5,000 startups over, say, five years, and $200 billion over the same span, but the math is the same.) And this ignores the previous contenders. What, really, is the statistical chance that any new startup will capture a substantial portion of that market? Given the massive barriers to entry via the need for building a substantial user base, and the large, incumbent players who already capture that ad revenue (Google is not going to go away), statistically, the answer has to be that It is approaching zero.

That should be the end of the argument from a mathematical perspective. The “rational” future “actual” value is the potential future value multiplied by its likelihood. I contend that the potential is far lower than stated, and the likelihood is far lower than stated as well. It’s not a $40 billion times 10%, it’s $40 million times .01%.

So there we have it. Mathematically, prices are out of whack with intrinsic values. And there is considerable disagreement, i.e. “considerable variance.”

There really shouldn’t be any thing else to the argument. However, I concede that all of this, while based in data, statistics and fact, is still based on my opinions of likelihood. There is still some guesswork.

Let’s look at the counter arguments.

The Arguments against it being a bubble:

There are a bunch. Let’s go through them one by one:

“This time it’s different”
There is a strange paradox going on with some observers contending that no one’s saying that this time things are different, while actually, this time, people are saying it’s different. Henry Blodget just gave us the best example of this. “Is everyone justifying today’s prices by saying ‘this time it’s different?’” he asks? “No.” And yet, right after saying that no one was saying ‘it’s different this time,” 15 slides later, Blodget is outlining why it’s different this time. It’s kind of awesome.

Paradox aside, Blodget’s arguments for why it’s different are the same as many others in the anti bubble camp: that way more people use the internet than during the dotcom boom, so the valuations are more realistic. That we are undergoing a social revolution, and that we are undergoing a mobile revolution. All of these are true. All of these are irrelevant to the existence of a bubble. They are arguments on one side of the “considerable variance” debate. Personally, I hope they are true. But we are sticking to the actual definition of a bubble here, and the fact that it’s different is moot. Indeed, both Schumpeter’s creative destruction and Peres’s technical revolutions, imply that many bubbles do result in something different, in a leap forward. And yet, the bubbles still happen, as do their commensurate crashes.

"Bubbles can be good.”
This is true. Bubbles can be good. They are still bubbles. The benefit of bubbles are moot to whether or not a bubble is happening. “Are we asking if consumer web/app technology's impact and influence on mainstream culture and ordinary people will decrease? I can't imagine so,” Anil Dash commented on Branch. It is an important point. Bubbles do destroy value, but good things can come out of them. This is probably more about the internal morality debates that many of us in tech have - are we helping the economy or hurting it? We may well be helping it, but it will still be a bubble, and someone else will bear the cost.

Nowhere in the definition of a bubble does social good enter into the equation. Carlota Peres predicates her whole seminal book on the fact that bubbles drive all major innovations. They do, however, come with costs, which she outlines in gory, devastating detail.

"Prices are in line with value"
The Public Markets are Fine, For now. Investor Chris Sacca colorfully sums it up: “As you guys know, I am also a very active late stage investor. Business on that end is entirely different than in the 90s when I first got to the Valley. Facebook, Twitter, LinkedIn, etc are all real businesses with CAGRs that would make a hockey stick blush and reach for the Viagra.”

Blodget points out that the IPO market is open, but it is far from robust. This is true. The bubble is not in public markets.

Yet many bubble deniers continue to use public market data to defend the private markets. Investor Chris Dixon does so in the Branch debate by saying, “In particular, in every bubble in the past, P/E ratios of securities bought and sold by non-professional investors were way higher than the historical average. During the dot-com bubble and housing bubble, P/E's were over 40…. Current P/Es in tech are a reasonable 17 (historical average for S&P is 15).” Blodget uses Apple as an example, showing that it’s P/E ratio is a reasonable 15.

Mark Andreessen echoed these sentiments last week when he said “If we're in a bubble, it's the weirdest bubble I've ever seen where everyone hates everything. If you check tech stocks that went public recently, it's nose down to the ground. We're now 15 years of flat stock market returns. That's a weird bubble.”

And yet public markets are irrelevant unless we’re arguing a narrow bubble of public market tech stocks only, which no one is arguing. It’s a red herring.

Public markets are tight right now partially due to tech stocks doubt, but the main reason for the lack of IPO access is due to larger issues with the recession we are currently in, and slowly working our way out of. This will change.

Previously, I had commented on how as pressure for tech companies to IPO increases , the public market tightness will come under attack. This absolutely came to fruition with the JOBS act, and Blodget as much as gives up the game in his recent presentation in a footnote that says ”The JOBS act could begin to change this. Fingers crossed…”

So let’s move on, then, to where most bubble-believers argue that the bubble is forming, in the private markets. As we’ve said, the hardest part of bubble identification is figuring out whether the prices have decoupled rationally or not. Whether “intrinsic values” are still being considered. Many bubble deniers concede this, such as Chris Dixon, who said of early stage private companies "those have never been valued by VCs on purely financial metrics." This is, of course, true, but could be interpreted to tacitly admit that pricing is not at “intrinsic value.” Of course, things still need to be “considerably at variance” and “high volume” to be a bubble, but this does effectively concede that things are not at intrinsic value.

There exists a large body of work explaining the apparently irrational yet defensibly logical pricing of tech startups - quality of the founder, mobile trends, social trends, competitive funding environment. If you look at something like this Quora thread, you’ll see a lot of talk about normal valuations, with some admissions that they are mainly guesswork. Indeed, it’s comical how many different Quora threads ask the same question in different ways. Poke around. Also often mentioned are whether the founder is still at their job, the quality of the founder, and whether they have a prototype. It’s worth noting that none of these three factors are related to the economic definition of “intrinsic value.” I’m not saying they don’t matter - they’re factors I base my own investment decisions upon - and god knows what ELSE we’re supposed to use. But nonetheless, they are irrelevant to economic theories of bubbles.

Chris Dixon recently conceded that “certain stages of venture valuations do seem over-valued, in particular seed-stage valuations and (less obviously) later stage ‘momentum valuations.’” He explains this by talking about the proliferation of seed stage investors who are investing in what they believe in (I would be one of those) and in the momentum stage by non-inherent-value decisions such as “VC’s who want to be associated with marquee startup names, the desire to catch the next Facebook before it gets too big, and the desire of mega-sized VC funds to “put more money to work.” He counters this by saying that Series A seems under-valued. Dixon rightfully points out that it’s hard to have a public debate about this due to confidentiality. He’s right. So basically Chris is saying there's froth in early stage due to lots of angels (like me) and froth at the late stage because of "momentum" valuations (ie tumblr and foursquare, groupon etc). In the middle, around Series A, he thinks that there's not frothy valuations. He may be right. So can it be a bubble if there's a sober moment in the process from early stage, to series A, to "momentum" valuations? It's an interesting point of view. I do wonder, though, If there's froth before and after sober Series A, however, does it really matter? And for what it's worth, personally, I have seen plenty of froth in Series A as well.

One thing I will cave on. Dixon makes the excellent, eye-opening point that “This doesn’t mean the investors think they will invest and then get some greater fool to invest in the company again. For instance, at the seed stage, intelligent investors are quite aware that they are buying the dream but will need to have numbers to raise a Series A.” I admit I hadn’t thought of that in exactly that way before. Yet if our bubble is in Social Mobile, a world still primarily of light revenue, I wonder what metrics those valuations are based on? Revenue is, after all, the only metric relevant to "intrinsic values." But most Series A rounds I've seen are still very light on revenue. The metrics used to establish value are based on users, who will, hopefully, one day be turned into revenue. Most of those valuations are, in my experience, fairly optimistic about per-user future revenue.

Andreessen’s method of market potential multiplied by likelihood does a good job at addressing these concerns. Though as we’ve seen, interpretations of the numbers can vary widely.  And none of those, however, work in situations like YC’s new “Apply without an idea” program, or the funding of some founders without any idea (i.e. Jakob Lodwick)

I’ll admit that we can’t get anything off the ground if we fund everything at zero or near zero valuations. We have to put a stake in the ground somewhere. But in terms of a strict definition of a bubble, it’s hard to deny that intrinsic value, from an economist’s point of view, hasn’t been thrown out the window.

In a recent controversial (in tech circles) NY Times piece by Nick Bilton, Paul Kedrosky,  an investor and editor for Bloomberg, explained “It serves the interest of the investors who can come up with whatever valuation they want when there are no revenues. Once there is no revenue, there is no science, and it all just becomes finger in the wind valuations.”

Chris Dixon partially affirmed this last week by saying “The argument that sometimes startups get better valuations without revenue is somewhat true.’

In the end, it’s anyone’s guess. Investor Chris Sacca sums up the conundrum on the Branch debate by saying “It's easy to moan about valuation creep on the seed stage deals, and I cringe at some of the entitled attitude I see around these days. However, for all the whining, I will concede that two of my best performing deals ever, Twitter and Instagram, were done at roughly $25mm and $30mm pre respectively. So, what the fuck do I know?”

It’s a mess. It’s a constant debate. But if we can’t know prices are too high, we certainly can’t know that they’re reasonable, and, thus, the defense crumbles.

The “greater fool” inversion.
Bilton, who was on the Branch thread, parries for the bubble believers: “One of the signs of a coming bubble could be seen with the high valuation of start-ups. Viddy at $370 million; Foursquare at $700 million; Pinterest at $1+ Billion. All of these companies, and many others, have very little, if any, revenue. When start-ups reach such high valuations, they are left with only a handful of suitors that can acquire them. If there is no buyer, these companies have to go public, which is where the price-earnings ratios become a problem and confidence can wane.”

To which Michael Arrington shot back “A lack of buyers is an excellent indicator of a not-bubble. The greater fool theory assumes there's always someone dumb enough to pay more.” Apparently because the number of buyers is limited, the greater fool theory is not in play.

I love this. The flaw here is that the whole point of the greater fool theory is that this is true until it’s not. One day the music stops.

Barring that, Bilton is correct: pressure is coming to push these companies public, before their ready (see below), thus, the “greater fool” argument is still in effect.

As an aside, Economists do not currently find the “greater fool” theory to be true, despite such believes being “prevelant among practitioners”

“No one is getting hurt.”
The argument here is that this is just a bunch of rich people gambling, it’s only in the private markets, and no one else is getting hurt. Your mom and dad aren’t going to get hurt.

This is so not true. Public pension funds have always been a massive source of venture funding. Says the Times recently, for example, “By September 2011, retirement systems with more than $1 billion in assets had increased their stakes in real estate, private equity and hedge funds to 19 percent, from 10.7 percent in 2007, according to the Wilshire Trust Universe Comparison Service.” Even in staid Europe, Pensions makes over 10% of the VC funding, The Economist points out.

Your mom and dad can still get hurt. This is not just rich people’s money. Not even close. It may ease our conscience to think that, but it is a lie.

Low costs in early stage startups
Paul Kedrosky made a point in the Branch debate I had not thought of before in terms of bubbles, and it’s an interesting one. “There does seem to be more activity at the early-stage than is justified by outcomes, & it is frequently happening at higher valuations than would seem prudent. Having said that, the costs are low, so, in the same way the Cambrian explosion led to most modern forms of life, cheap speciation (with high die-offs) is an unsurprising ecosystem response to incident energy..”

Basically, yes, values are high relative to intrinsic values, but startups are so cheap now that it doesn’t really matter if a bunch of them die off. Good will be done.

To me, this seems to be a combination of the “bubbles can be good” argument and the “no one is getting hurt” argument. I’ve tackled each individually, and should point out that  both are specifically not relevant to the definition of the bubble, and in aggregate, damage may still be done if capital is being diverted from other, more useful sources. Recall the recent Tweet heard round the world by ex-Facebooker Jeff Hammerbacher, as highlighted in a recent Business Week article that expounds upon this point: “"The best minds of my generation are thinking about how to make people click ads. That sucks."

There you go.

Why I think we are confused.

So what the hell? Seed stage bubble, rationality at Series A, then bubble again in “momentum.” Bubbles can be good. It’s gambling but it’s not. WHY DOES ANY OF THIS MATTER? It is easy to get confused. And here, I think, I would like to introduce some new factors into the debate.

We’re carrying baggage from last time

Many debates refer to “1999 style bubble.” NASDAQ insanity. Billions (Trillions?) of dollars vaporized. Our parent’s savings decimated. The dream of the internet halted. It hangs heavy over all of us. Many of us learned about bubbles for the first time (for my part, dating a Texan in college, my first real world experience, after studying bubbles in college, was the late 1980’s Texan real estate bubble). Much of our understanding of bubbles comes from NASDAQ’s rise and fall. The layoffs. The irrational exuberance. We are attempting to pattern-match.

But what if we are pattern-matching only the trappings of the bubble. We’re trying to avoid repeating our past mistakes. We speak of revenue in companies, though it is economically irrelevant to a bubble. Investor Dave McClure sums this line of thinking up when he says “there is SUBSTANTIAL revenue and even profits being generated by a much larger # of companies than ever before.”

We talk about P/E ratios of public companies. Ditto. We talk about how the economy as a whole is depressed, NASDAQ isn’t rising to the stratosphere. Though we felt and remember these things viscerally, they are all irrelevant to economic theory. We are addressing old criticisms when debating a current topic.

We also use the word “Bubble” to talk about all the cultural ridiculousness from the dot com era. Stupid parties. Bankers as tech moguls. 12-year-old founders. There was a lot of silliness in the dotcom era, and some of that silliness is happening now. This is neither evidence of a bubble or evidence against. But boy, does it bring back bad memories.

When we debate what’s actually going on, now, however, we must strive to remove all of that from our thinking.

Some people have an interest in milking it

I don’t want to spend too much time on this one. It’s tacky. And I don’t want to attack anyone personally. But remember: many people, including myself, are heavily invested in this trajectory continuing for a good long while, and getting a ton of these companies to IPO. Would a newspaper man be impartial talking about whether the newspapers are dying or not? Would a screen printer have an impartial opinion on desktop publishing? I’m not interested in going ad hominem, but there exists a substantial economic body of work around economic signaling and markets.

It’s early in the bubble

In his recent presentation, the multitude of slides Blodget shows of industry trends now vs. the dotcom bubble look, on first blush, as if they are different. The massive, spiraling peak we see in any chart of a bubble, ex post facto, hasn’t occurred yet. Yet if you look at 1997-1999 and compare it to 2010-2012, they are eerily similar. Bubbles start, grow, peak, and bust. That whole cycle is a bubble, regardless of where you are on it. Is this bubble early? Late? I’d probably wager we’re maybe a year or two in and it’ll peak in 2 or 3 more. But it doesn’t matter. That whole journey is the bubble. And I believe we’re in it now.

Words, words, words.

You’ll notice a lot of people saying “Boom” lately. Blodget, after saying there’s no bubble, throws in the word “boom” at the end of his presentation. MG Seigler starts the Branch.com conversation with “It's boom times, yes.”

In economics, a bubble consists of a boom, and then a bust. That’s it. Boom sounds nice, boom times, boom boom boom. Booms come with busts. Within a specific industry, booms plus bust equals bubble. End of story as far as economics go.

“Boom times,” the fun one, conjuring images of the wild rest or a factory towns or smiling Wired covers, are associated with the economy as a whole. These booms also go bust, but it’s a longer economic cycle than a bubble, so it sounds less threatening (though paradoxically potentially far more damaging). It’s semantics, and irrelevant to the larger conversation.

There’s not a lot we can do about it

This is, basically, true. There’s probably not much we can do about it, except for talk about it, hence, the endless debate. Matthew Ingram from GigaOm says on the Branch thread “But is cynical gambling behavior in tech or startups any different from what happens in the stock market or any other market every day?”

Gambling comes up often these days when talking about tech. There is substantial economic debate and theory going on about whether the stock market is gambling or not at this point, and it’s an interesting discussion. The strongest traditional argument is that value is created in the stock market, and gabling is zero-sum. This is still probably true (though, again, there is debate about this on a macroeconomic level). Some economists believe that bubbles can create value over the long term (Peres) but they are still bubbles, and there are still losers.

Additionally, sticking to our common definitions of gambling, all this does is reinforce pricing is against intrinsic values.

It may not matter

MG Seigler on Branch says “All boom times end eventually. But calling this a ‘bubble’ implies this time is going to ‘burst’ with far reaching consequences. I just don't see that.”

This may be rational. Most economists agree that bubbles can cause economic damage and are interested in discovering why they happen. But most economists also agree that there are benefits (Peres, Schumpeter’s “Creative Distruction,”) etc. It’s irrelevant to the “are we in a bubble” debate, but I believe that we all viscerally want to deny being in a bubble because we equate bubbles with the devastation wrought in the dotcom boom and the recent housing market boom, though those levels of devastation are not required for a bubble. Big bubbles take economies down with them. But bubbles don’t have to.

In 2007 or so the English synth pop band Depeche Mode was beginning work on their last album, Sounds of the Universe. By this point in their storied career, Depeche Mode had sold over 100 million albums. Their 8th album had gone platinum in the US and number one in eight major countries. Their 7th had gone triple platinum. They had some cash and they were going to put it into their new record.

Toward that end, Martin L. Gore, the primary songwriter in Depeche Mode, decided that he wanted some new gear. Not new, exactly, but rather old, vintage analog synthesizers (along with a boatload of guitars). And he wanted a lot of them. Said the engineer on the record Luke Smith, “Martin was buying all of the kit he’d ever wanted, along with any new and experimental gizmos that tickled his fancy. We started with a lot of gear, and by the end of the session there was a veritable smorgasbord of devices available to satisfy any palate.” Martin even credited the spree to the sound of the record: “I don’t think we can play down the effect that the parcels arriving every day had on the record.”

He was, to quote musician and analog collector Sean Drinkwater, “buying up every Steiner, EMS and EDP synth in existence.” Anyone shopping for analog synthesizers noticed that many of the Ebay auctions were ending in higher-than-normal prices. The specialist online sales outlets were all sold out, and synth prices skyrocketed. Frenzy ensued, and prices continued to skyrocket. Eventually, Depeche Mode got all the synths they needed, and prices began to decline.

And in the end, unless you were a synthesizer collector, the whole thing did not freakin’ matter one bit.

We learned our lesson last time

Many people believe that the tech sector has been sufficiently chastened and are more careful this time. Dave McClure says “The far greater trend is towards more rational co's & pricing compared to 10-12 years ago.”

I’m tempted to say, “Irrelevant! Bubbles have strict definitions!” But in actuality, there is some validity for this point of view. Some economists agree. Studies have been performed where “bounded rationality” (the limits of investor’s knowledge) is mitigated over time with learning.⁠1 The studies were done with repeated trades with personally-known participants, but it’s not completely irrational to say that we’ve learned from the past bubble and may not make the same mistakes again. I hope so. It does, however, remain to be seen, and economic theory has not performed similar studies in the real world where people don’t really “know” each other. As an aside, there’s some interesting potential here on what it means to know someone, via social media and blogging, but I digress.

The Sustainability question

On the Branch debate, McClure nails it when he says “the more relevant issues to discuss are: (1) are there companies at incubation, seed, series A/B/C, or pre-IPO being ‘overpriced’ by investors, (2) is that happening at an ‘unsustainable level’ (ie, at some point will it be re-priced lower), and (3) is the trend towards more or less of that occurring now or in the future?”

He concedes points (1) and (3), so (2) is the big one.  Is it sustainable? Right now it can feel that way.

But things are happening.

We’re in a depressed economy, and VC is the one place exhibiting big returns. An analyst friend of mine says that the Instagram deal and the Facebook IPO are causing a frenzy with hedgies and high net worth individuals. And here I must apologize for bringing up Instagram. I agree with Chris Dixon that the Instagram deal is irrelevant to the existence of a bubble, and indeed it was a market price, not a valuation price so economists would agree as well. But the fact is rich dudes not in tech are freaking out over it. They are blown away by the breathtaking speed of wealth creation from the deal - who wouldn’t be? Many people on the Street are saying that that deal turned heads in a way even Facebook hadn’t. More money is coming into tech because of Instagram, whether it evidenced a bubble or not.

So what happens if the JOBS act, Instagram envy, a rebounding economy and the Facebook IPO concoct a perfect storm and cause a giant amount of new capital to flood the VC market?  Will prices stay the same? Or will we see an accelerated upward spiral? Will they still be sustainable then?

Are any of those four things NOT going to happen? We’ll have to see with the Facebook IPO but if all goes according to plan, this bubble could well be kicking into high gear.

We Believe in the Internet

The internet has massive potential. I believe this. We all do. We don’t like to call it a bubble because doing so belittles the transformational power of the internet. It makes the layperson go “Oh, just ignore that, it’s a fad.” The internet is not a fad. I believe that. Anyone in tech believes that. It’s why, despite everything I write here, I continue to invest in early stage internet companies (and, I confess, I may be a bit susceptible to the greater fool theory).

No one wants to beat on their baby. We love the Internet. All this talk of a bubble makes people doubt it. We don’t want people to doubt the Internet. For many of us, it’s the future. We remember people belittling the Internet after the dotcom bust, and it stung. Promise unfulfilled. It is very, very hard for me, at least, to talk about tech being hyped, because I love it so. It requires unrelenting intellectual honesty, and I can’t deny a massive amount of anxiety saying these things when I think about my own overwhelming exposure to tech in my investment portfolio. But I must. It sucks for me to say it, and I am not acting, yet, with my personal investments because of my belief that we are in a bubble, but I should. As much as I hate that. In the end, even though I see it coming, I’m gonna try and time it as much as anyone. Because I love the Internet, and I don’t want to get out.

New TechCrunch editor Eric Eldon, in 2010* (Disclaimer: New York Observer News Editor Megan McCarthy was neighbors with Mr. Eldon from 2006 to 2008)

Damn, we thought for sure the next big exit from the ashes of the house that Arrington built was going to be Alexia Tsotsis, but it looks like heads are rolling closer to the top instead. Editor-in-chief Erick Schonfeld, the "man without hap" that many doubted could match Mike Arrington's bluster swagger, is out as editor-in-chief of TechCrunch.

In aberration from the typical TechCrunch good-bye post, which is becoming something of a genre, Mr. Schonfeld didn't pen his own farewell. Rather it was written, mere minutes ago, by Ms. Tsotsis and her new boss, Eric Eldon. Mr. Eldon is a former editor at VentureBeat and, unlike Mr. Schonfeld's promotion, it looks like ex-Crunchers approve.

On PandoDaily, MG Siegeler writes:

"The truth is that this is the perfect position for Eldon. From the Stanford Daily to Y Combinator to VentureBeat to Inside Network to now TechCrunch, he has pretty much all the aspects of Silicon Valley flowing through his veins. He has been a writer, an editor, and a two-time startup founder."

On the phone with Betabeat, Mr. Eldon, who joined TechCrunch last November, said, "I've been reading TechCrunch since 2005. Most of the time I've been competing against it. Now I get to do something that I would have never imagined then — built it up."

His introductory post offered a pointed description of what readers can expect from the new regime:

"We’re going to put our heads down and focus on the basics.

We’re going to continue building our team in Silicon Valley, hitting the mean streets of Silicon Valley to report on the entrepreneurs, investors, world-class tech companies, and everyone else that makes this ecosystem what it is.

You know, the stories that made TechCrunch your homepage back in 2005 when it was a personal blog written by Michael Arrington." [Emphasis ours.]

We take it that means they'll stop linking to other blogs that break tech news before them and demand 'exclusives or else'?

Along with the renewed editorial swagger, Mr. Eldon promised a more globally-minded expansion. "But it’s 2012 and the whole world is embracing tech entrepreneurship, so we’ll also grow our staff in other key cities in the US and around the world, too."

As evidenced by the hurried post, however, the upset at the top was abrupt. "Things can change very quickly in the world of blogging, and Erick decided now is the best time for him to leave," wrote Mr. Eldon. Rumor has it that that decision may have been made for him, but for now, everyone's playing nice:

TechCrunch is in good hands. I'm very proud of the team I've built there techcrunch.com/2012/02/27/goo…

— Erick Schonfeld (@erickschonfeld) February 27, 2012

In the meantime, hide your bloggers, hide your wives:

and they'll ruin more. "@anthonyha: Man, @eldon's tech blogger recruiting skill have ruined so many lives @JoshConstine @parislemon" — Eric Rosser Eldon (@eldon) February 27, 2012

Check out Betabeat's profile, "Can Erick Schonfeld Keep the TechCrunch Swagger Alive?"

Image via Flickr user jdlasica

For the last decade, Erick Schonfeld has been the lone wolf of tech media, working as the East Coast point man for tech publications headquartered in Silicon Valley “He’s the kind of reporter who can handle anything you throw at him, from a trendy Web 2.0 startup to a Fortune 100 titan,” said Josh Quittner, who was Mr. Schonfeld’s old boss at Business 2.0. “For us he played the one man band.”

The thirty-nine-year-old father of three lives in the suburbs near Chappaqua, forty five minutes north of New York City. (He left a tip on Foursquare about his morning commute from the Metro North station: “Get here early and snag a metered parking spot.”)

At public events he tends to wear slightly oversized suits in tan or grey, frameless glasses and a thick head of dark curls. “He’s a very sober person, even keel, not easily upset,” said Mr. Quittner. “When I started we had a number of people working for us on the East Coast, but by the end it was just Erick.”

Two weeks ago, Mr. Schonfeld, never a shrinking violet, took a big step into the spotlight. He had been, for the last four years, the co-editor of TechCrunch, a level headed counterpart to Mike Arrington, the pugilistic provocateur who founded the site as a personal blog. But the last year has been an eventful one for TechCrunch. Mr. Arrington sold the site to AOL a year ago, after which AOL merged with the Huffington Post, setting up an inevitable clash between two of the biggest egos in media: Mr. Arrington and Arianna Huffington. After Mr. Arrington announced he'd formed his own tech fund and would be investing in some of the same companies TechCrunch covered, he was forced out in a dramatic shake-up. That's when the mild-mannered editor was asked to step in for one of the media’s biggest bomb throwers. He accepted the position, and immediately found his old partners leveling their formidable rhetorical firepower at him.

“The truth is, Erick was Arianna Huffington’s choice, not TechCrunch’s,” wrote Arrington acolyte Paul Carr, in a resignation post that he published on TechCrunch (where else?) as Mr. Schonfeld was boarding a plane. Mr. Arrington followed up a few days later on his new blog, Uncrunched, noting, “Public executions of leaders tend to have a severe chilling effect on whoever takes over, and Arianna Huffington is, without a doubt, the current editor in chief of TechCrunch.”

With his influential ex-partner publicly undermining his authority, many wondered if Mr. Schonfeld could keep the site together. Prominent tech investor Fred Wilson had already written on his blog, “TechCrunch is a big question mark. If AOL can keep the rest of the team together, then TechCrunch has a bright future.” The key, wrote Mr. Wilson, was that Techrunch “Has a voice, a swagger, a 'fuck you' attitude that comes from Mike. That can also live on without Mike if AOL allows it. They need to keep the remaining team, the voice, and that attitude if they want to remain at the top of the world of tech media.”

That may be Mr. Schonfeld's biggest challenge for the moment. The two remaining writers best known for their swagger are Sarah Lacy and MG Siegler.

Ms. Lacy is on a fourth-month maternity leave. And late Monday night, Mr. Arrington announced that MG Siegler would be coming to work for him as a venture capitalist at his new Crunchfund, though he would continue to pen a TechCrunch column on Apple.

A weary Mr. Schonfeld phoned Betabeat, shortly after the news about Mr. Siegler broke. “Obviously, MG was a great asset to us, and I would have loved to keep him on as a writer,” said Mr. Schonfeld. “But I'm glad I found a way to keep his voice on the site.”

Mr. Schonfeld noted that this move into venture capital was long in the works, a notion Mr. Siegler seconded in a blog post. But the timing, so soon after Mr. Arrington’s departure, did not look good. “It doesn't really matter how it looks, it matters how I perform,” said Mr. Schonfeld. “I'll stand by that, over the time to come.”

Despite being viewed by some as the Robin to Mr. Arrington's Batman, in fact Mr. Schonfeld has a formidable resume of his own. After graduating from Cornell in 1993, Mr. Schonfeld went right to work as a journalist at Fortune. In 1996 and again in 1997, Schonfeld was recognized as one of the “brightest financial journalists under the age of 30” by the TJFR Business News Reporter. In 1999, he won the prize for best information technology submission at London’s Business Journalist of the Year Awards. In the lead up to the dot-com bust he moved to Business 2.0 and when that company went under a few years later, he took a coveted spot as co-editor at TechCrunch.

When Mr. Schonfeld began working at TechCrunch in 2007 it was still largely the personal blog of Mr. Arrington. In the five year’s since, the site has become the news outlet of record for the tech industry. Startups compete to break their company’s news on TechCrunch, both as a status symbol and because coverage there brings young companies so many new users. The site’s conference, Disrupt, is a sell-out affair, with execs from Google, Facebook and Twitter taking the stage to trade inside jokes with Mr. Arrington.

Mr. Schonfeld’s opportunity is vast. TechCrunch is bigger and more profitable than ever. Its recent acquisition by AOL means it has a fatter bankroll and a much larger audience network. Still, there's a big obstacle: Mr. Arrington seems intent on burning the fields behind his departing forces, even going so far as to write his own epitaph, evoking the spirit of Louis XIV: “I am TechCrunch and TechCrunch is me.” Given that he's the site's founding editor and most recognized writer, that has been true till now. It’s up to Mr. Schonfeld to rewrite that formula.

“I’ve been recruiting for the last three weeks straight,” Mr. Schonfeld told Betabeat. “To pretend that everything will go on as before is foolish. But the team will grow and, best of all, the top writers in the industry all want to work for us.”

For some, Mr. Schonfeld comes across as the consummate company man. “When Mike sold TechCrunch to AOL, a lot of the writers were very unhappy,” said one former staffer. AOL was about as far from the scrappy, irreverent brand TechCrunch had built as possible, and what had been an intimate business was now going to become part of a notoriously corporate behemoth. “Erick was the opposite of most people. He seemed to relish going to those AOL management meetings.”

No one Betabeat spoke to for this article doubted Mr. Schonfeld’s talent’s as a journalist. But several of the site's writers, past and present, worried that Mr. Schonfeld didn’t have the edge necessary to cultivate a new class of TechCrunch writers who would maintain the site's trademark swagger. “Mike can make you feel like a million bucks, and he can also tear you apart with a few words,” said a former staffer. “Erick was good at patching things up after Mike lashed out.”

Up until now, Mr. Schonfeld’s calm persona had been an asset at TechCrunch. It was a classic good cop, bad cop partnership, with Mr. Arrington lighting the fires and Mr. Schonfeld, along with CEO Heather Harde, making sure the trains ran on time.

But Mr. Arrington’s wrath was also the site’s most powerful tool. He used it to motivate his writers and to inculcate their work with a combative tone that became the site’s trademark.

Mr. Schonfeld threw a few punches of his own last week, slamming rival publication VentureBeat for writing a hackneyed attack on TechCrunch. VentureBeat quickly retracted their story and then apologized. Asked if he felt the need to get more aggressive, to put his own stamp on TechCrunch and to reclaim it from Mr. Arrington, Mr. Schonfeld demurred. “It’s not like I’m new here," he said. "There will be more continuity than difference and I don't see a need to sever the connection to Mike. I am not going to change the editorial approach, which was to be smarter and to be first.”

But Mr. Schonfeld did acknowledge that he needed, in some very big ways, to fill the void left by TechCrunch’s departed founder. “I have a lower profile than Mike, it’s a different style.I try not to draw attention to myself, because I prefer to let my stories speak for themselves. But yes, I realize I am the face of the company now. I don’t have to do things the way he did, but yes, I have to come out and be more, be in public."

Nonetheless, he added firmly, "I’m going to do it my way.”

*Refresh, refresh, refresh.*

Those of you who hopped on a plane without Wifi Friday evening can be forgiven for not keeping track of what AllThingsD's Kara Swisher described as "pure twaddle wrapped in ridonkulous grandstanding." First came TechCrunch writer Paul Carr's lively public resignation letter. That was followed by newly-crowned TechCrunch editor Erick Schonfeld's equally public resignation acceptance. And then, to pile it on, TechCrunch writer MG Siegeler offered a semi-private anti-Huffington IED because hey, it's no fun if you can't play too.

Digg's Kevin Rose compared all the adolescent drama to "a LiveJournal page," so put on some emo jams and join us, won't you, as we flip through the pages of TechCrunch's Burn Book. And, yes, for the most part, you'll find it at the same URL where the professional tech blog used to be.

I BLAME ERICK

When Betabeat last left the "Housebabies of Silicon Valley"--nothing brings out Ms. Swisher's playful side more than a moving target, apparently--Mr. Carr had just j'accused! Mr. Schonfeld of cutting "a side deal with Huffington to guarantee him the top job once Mike was gone," rather than "making a stand for the site's editorial independence from The Huffington Post."

Considering the fact that Mr. Carr published his missive attacking Mr. Schonfeld, exposing internal power struggles, and potentially damaging the future of TechCrunch on TechCrunch, once again, we're baffled by how Mr. Carr defines "editorial independence," except as letting Michael Arrington get exactly what he wants all the time--in this case: picking his successor. "The irony is that had Erick stayed strong for just a few days, he’d would have been appointed interim editor anyway, with Mike’s blessing," writes Mr. Carr, before changing his tune a few paragraphs later, "The notion that a Silicon Valley blog should be run by a guy in New York is just ludicrous."

Unfortunately, Mr. Carr buries perhaps the most disturbing revelation:

Not three days after his appointment, Erick made his first ethics disclosure as TC’s new editor — insisting that Mike had played no part in the selection of TechCrunch Disrupt finalists. Bluntly put, that was not true — as Mike had to clarify in the comments…

“Erick… Please be careful making statements on my behalf. And remember that reader trust is what matters. You shouldn’t say “he was not involved in the final selection of these companies” just because it sounds nice. Since it isn’t true, you shouldn’t say it at all.”

One of these two men is your new ethical champion, Arianna. The other one is the guy you fired.

Considering the number of startups that hype "We came from TechCrunch Disrupt" as part of their origin myth, we fail to see how the guy that influenced a competition, but disclosed it gets crowned the ethical winner. Sorry folks, no champions of reader trust here.

Some viewers took umbrage at the high-minded Hunter S. Thompson epigraph that led Mr. Carr's post. On TechCrunch writer Robin Wauter's blog (yes, Mr. Wauters too dipped a toe into the morass, if only to shake off the slime) an anonymous commenter wrote under the name "r8ndom":

"Do readers actually pay attention to bylines? I see all these adjectives being thrown, like "phenomenal" and "amazing", like it was Ernest freaking Hemingway writing, but to me all articles look the same - a paragraph on some company, couple of paragraphs on what they do, obligatory screenshot, and a wrap-up clarifying who the investor is and where the founders came from."

Betabeat begs to differ in this instance. Consider, if you will, Mr. Carr's jaunty usage of the word "hap" to skewer Mr. Schonfeld:

"He’s just — what’s the word? — hapless. He is a man utterly devoid of ‘hap’. Hating him for being expertly played by Arianna Huffington is like hating a baby for crying on a long-haul flight. He doesn’t understand why people are mad at him, he just wants to be fed."

I BLAME PAUL

It may strike some as odd that Mr. Schonfeld felt obligated to publish his acceptance of Mr. Carr's resignation letter on TechCrunch. But let's remember, people, this is a company where an employee that has been fired threatened to quit by sending a ransom letter, so it's probably crucial to make someone's employment status clear.

Mr. Schonfeld dismissed Mr. Carr's allegations as the delusional ramblings of a wandering freelancer and claimed himself champion on "editorial independence":

"Paul’s resignation post reads like the brave stand of a man of principle. But the truth is that Paul doesn’t really know what he is talking about. And he certainly doesn’t speak for TechCrunch. He is not even a full-time employee. I tried to reach out to him and was hoping to have an honest conversation about his future (or lack thereof) at TechCrunch. Instead, he blindsided me with his post by publishing it as I was boarding a plane."

Then he explained his decision not to take down Mr. Carr's post:

At any other publication, Paul would have been fired long ago. And his post would be taken down. But I will let it stand. When Paul was hired, he was promised that he could write anything and it would not be censored, even if it was disparaging to TechCrunch. I will still honor that agreement. Paul likes to groan a lot about TechCrunch’s supposed loss of editorial independence. Yet he cannot point to one instance where he was blocked from saying what he believes on TechCrunch, and I am not going to start to do that now.

Somehow, this made TechCrunch commenters very angry as they imagined how Saint Arrington would have done it differently. Sadly, Mr. Schonfeld lost the high road by calling Mr. Carr a "misinformed coward" on Twitter for posting while he was about to board a plane. But no one paid attention to the "coward" part for long as the whole discussion devolved into the strength of Mr. Schonfeld's Wifi signal considering he tweeted aboard the same flight.

As TechCrunch top commenter Charlie Joslin wrote, "I assume these people have each other's emails and phone numbers so this could be easily solved that way." One would think, Charlie, one would think.

I BLAME ARIANNA

It was Saturday by the time MG Siegler decided to pile on. Mr. Siegler titled the post on his Tumblr "What Needs to be Said." On Twitter, Ms. Swisher edited the headline to, "What Needs to Be Said if You're the Emperor of Me-Me-And-Also-Me!" Adding, "FYI, Rupe doesn't call us much, cuz we're adults" in response to Mr. Siegler's nagging curiosity over why AOL hasn't contacted him personally about the matter.

"Also the truth: AOL has not reached out to me once in this entire situation. You’d think they might care about something like that. Evidently, they don’t. I’m not losing any sleep over it, but it’s curious."

"Obviously not, right? I mean obviously he hasn’t given it a second thought about why AOL hasn’t called him, which is why he’s writing about it," explained business writer Dan Lyons.

After giving his one-word verdicts on his colleague's version of events, "I found Paul’s post tactless. And I found Erick’s response inappropriate," Mr. Siegler unmasked the real enemy, pointing the j'accuse finger further up the food chain at Ms. Huffington:

"There is exactly one person to blame for all of this — and her name is not Erick."

Mr. Siegler also managed to reassure concerned readers about TechCrunch's future . . . by comparing it to banks with toxic assets:

"But TechCrunch is also too big to fail. One way or another, it will live on. Try as hard as AOL might, they can’t totally fuck it up. That’s just the truth."

I BLAME SHAKESPEARE

In a brilliant little takedown, Mr. Lyons wonders if these dudes haven't been watching too much Henry V:

"M.G. also reassures his readers that “no matter what happens,” he’ll be fine. Maybe so, but the worlds of technology and journalism will never be the same! How fitting it is for this band of courageous hacks to go out in a blaze of glory. Burn with fury, oh poets of the Valley! Rage against the dying of the light! Long after you are gone the world will remember that once — yes, once, in a different time — there lived men like you, brave giants who strode the earth with swagger and fuck-you attitude, who feared not the wrath of their corporate overlords, who turned defiant faces upward and bit — yes, bit, with sharpened teeth — the hand that fed them, who stood loyal beside their King and Leader and refused to break ranks when surrounded by the enemy, vowing instead to fight to their last breath.

This — yes, this! This glory, this wonder! This was Camelot! This, my friends, was TechCrunch."

"Madness...?! This is TechCrunch!"

You didn't really think  Michael Arrington was going to step out of the suddenly "nuclear" spotlight with a few lamestream media quotes and some tweets, did you? If so, you must not have seen yesterday's ransom letter in which he says: give me "editorial independence" or gimme my site back.

In short he's recasting his ethically questionable decision to continue to edit a site about startups even as he invests in them as an affront to his very freedom.

We would call his latest move classic Arrington, except even for  a "digital megalomaniac," this is brazen. Well, brazen or laughable. Definitely one or the other.

When Arianna Huffington told David Carr that Michael Arrington was yanked from the editorial payroll and TechCrunch masthead "effectively immediately," and relegated him to the role of unpaid blogger, this is probably not the kind of blog post she had in mind.

Along with a still of Spartan warriors ripped from the movie 300, Mr. Arrington issued the following ultimatum:

"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.

If Aol cannot accept either of these options, and no other creative solution can be found, I cannot be a part of TechCrunch going forward."

"Between TechCrunch and AOL, I’m not sure which of the two is the warden and which is the prisoner," quipped Wired.com's Tim Carmody. Henry Blodget, the editor banned from securities trading, is always at his best when critiquing Mr. Arrington and he didn't disappoint in this case:

"To be clear: This is equivalent to an employee who has been fired demanding that, if the division he just got fired from is not immediately stripped from his former boss's control and placed back under his control, he'll quit."

If you've been following the controversy, you'll remember that TechCrunch employees forecasted this kind of grandstanding about "editorial independence" with posts about TechCrunch's exceptionalism. Although it turns out, it's not so unique. Following the thread in TechCrunch's bloggers posts critical of AOL and its executives, "editorial independence" is clearly synonymous with keeping Mr. Arrington on in charge, despite his conflicts of interests.

But Mr. Arrington neglected to mention a third option: Mr. Arrington leaves TechCrunch. According to Mr. Blodget, it's all about the earnout, baby:

"Importantly, by alleging that AOL has violated a promise that it made prior to the TechCrunch acquisition--that TechCrunch would remain editorially independent--Arrington has already begun sowing the seeds of wrongful termination (or rightful quitting). One suspects that this "promise" of independence did not include TechCrunch setting up a non-AOL-owned venture-capital fund that will invest based on private information gathered by TechCrunch's reporters, but details, details..  This will make it easier for him to get his full payout on his TechCrunch earn-out, which otherwise he might have to waste a couple of years hanging around for. And it will cheer other TechCrunch employees, all of whom are blaming this mess on AOL, not Arrington."

Fortune.com's Dan Primack points out that the real loser in this conflict is Arianna Huffington:

"Various reports suggest that she's furious with the implicit breaching of AOL's editorial ethics, and wants Michael Arrington not just banished from AOL editorial, but from AOL (AOL) as a whole. Sounds as if she was blind-sided, except that a source close to the situation insists that she knew about CrunchFund for weeks (but possibly didn't realize its negative PR implications).

Huffington's problem, of course, is that it no longer matters which version of the above story is correct. If Huffington knew about CrunchFund and is now hanging Arrington out to dry, then she will deservedly lose the respect of her remaining employees. If she didn't know, then one has to wonder how much attention she's paying to her charges. After all, CrunchFund was secret but not that secret."

It looks like that nuclear situation is about to explode because, as AllThingsD's Kara Swisher reports, AOL isn't planning on selling:

"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."

While we await the mushroom cloud, feel free to play along with this new game Betabeat just invented. Read through these memorable quotes from 300 and imagine Mr. Arrington as King Leonidas (you know he's doing it) and Ms. Huffington as the evil Persian god-king:

Xerxes [Huffington]: There will be no glory in your sacrifice. I will erase even the memory of Sparta [your blog posts] from the histories! Every piece of Greek parchment [old school TechCrunch blog spots, like where you write about startups you invested in with disclosures] shall be burned deleted. Every Greek historian, and every scribe [Arrington fan and blogger] shall have their eyes pulled out, and their tongues cut from their mouths. Why, uttering the very name of Sparta, or Leonidas [Michael Arrington], will be punishable by death! The world will never know you existed at all!
King Leonidas [Arrington]: The world will know that free men stood against a tyrant, that few stood against many, and before this battle was over, even a god-king [an aggregationist-in-chief] can bleed.