CrunchFund’s future

FORTUNE — It has been 20 months since TechCrunch founder Michael Arrington launched CrunchFund, a venture capital firm that had the blessing of AOL, the company that had purchased TechCrunch one year earlier. Until AOL changed its mind, and Arrington was fired. Until it changed its mind again, and he rejoined TechCrunch as a paid contributor.

Outside of the Arrington-AOL drama, however, CrunchFund itself has largely flown-under the radar. It doesn’t even have a website (take that Benchmark!). It has been so low-profile, in fact, that some in Silicon Valley have whispered that Arrington is sitting at home in Seattle with his feet up, resigned to the notion that CrunchFund was a blogger’s failed investment experiment. Yesterday those rumors got even louder, with news that one of CrunchFund’s three partners — MG Siegler — had quit to join Google Ventures.

From what I can tell, however, such speculation is totally unfounded.

CrunchFund was reported to have raised $20 million at launch, with an $8 million cornerstone commitment from AOL (AOL). Most of the rest came from Silicon Valley investors, including both individuals (Ron Conway, Marc Andreessen, etc.) and firms (Kleiner Perkins, Sequoia, etc.). It quietly would add another $7 million, according to an SEC registration document.

For AOL, the original commitment was seen as a way to keep its key talent happy. For the VCs, it was a way to ensure coverage for portfolio companies on TechCrunch (or, on the flip side, ensure a lack of negative coverage on TechCrunch). No one I spoke with at the time really talked about return expectations, although no one doubted Arrington’s access to hot entrepreneurs.

And it may have been a good thing too, because CrunchFund’s initial investment strategy resembled Dave McClure on deer antler spray. Sometimes it would pump just $10,000 into a new startup, and other times would invest well under $1 million in later-stage companies valued at $1 billion or more. Ultimately, however, Arrington and company settled on a sweet spot of between $100,000 and $500,000 for early-stage companies — which makes more sense for a $27 million micro-VC fund.

To date, CrunchFund has invested just over half its capital into more than 80 companies. Ten of them already have experienced liquidity events — including “acqui-hires” — while only one has been written off. The current internal rate of return (IRR) is somewhere between 20% and 30%.

That data signifies two things:  (1) CrunchFund doesn’t actually need to raise a second fund yet, with plenty of dry powder in the till; and (2) CrunchFund should be able to raise a second fund when it does go out, based on performance.

As for the first point, consider CrunchFund in the very early stages of pre-marketing — having reached out to just a few of its 61 limited partners. That select company includes AOL, whose CEO Tim Armstrong is scheduled to sit down with CrunchFund partner Patrick Gallagher later this month.

On the second, it wouldn’t be surprising to see CrunchFund’s investor base change significantly next time around. More traditional VC funding sources like pensions and endowments, and fewer of the rival VCs who didn’t really get much TechCrunch bang for their CrunchFund bucks.

One big wildcard may be who, if anyone, Arrington and Gallagher choose to replace Siegler. There is a perception that MG was the trio’s most active in terms of sourcing new deals, and his departure was fairly abrupt (he had been in talks with Google Ventures for months, but didn’t inform CrunchFund until last week).

Neither Arrington nor Gallagher returned requests for comment on this story, but a CrunchFund investor summed it up like this: “A lot of venture capital is about who you know and what people think about you, but only because we all believe that has an impact on performance. If CrunchFund ultimately generates good returns, he’ll get the money [for a second fund]. But it’s still too early to send him another check, or to tell him to kiss off — even though there are probably people who want to do both.”

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