AOL (NYSE: AOL)—which is doubling down on its own local efforts—is now setting up a $10 million venture capital fund to invest in the local space. The company cites the “increasing number of startups” in the market as driving the creation of the fund, which will operate as part of AOL Ventures. Also likely not a coincidence: AOL Ventures head Jon Brod joined the company via its acquisition last summer of hyperlocal news startup Patch.

AOL is already spending $50 million this year to expand Patch; specifically, the company now says it will add 15 hyperlocal sites to its current 40 over the next three months. It’s also announcing it will relaunch its City’s Best entertainment guides in 25 cities in order to add “high-quality, city-specific content” and will add geo-targeted local content to AOL.com.

In its announcement, AOL CEO Tim Armstrong says that the local space online is “an untapped market for the most part and one of the largest commercial opportunities online that has yet to be won.” He elaborated on that view in this CNBC interview today. But, as we’ve pointed out before, AOL isn’t alone in its ambitions. The other large internet companies, including Microsoft (NSDQ: MSFT) and Yahoo (NSDQ: YHOO), are also zeroing in on the same opportunity.

• AOL’s 2009 By the Numbers: $190M Reorg Charges; Sold Buy.at For $17M; Patch’s $50M 2010
• Industry Moves: Patch CEO Brod Picked To Head AOL Ventures