SAN FRANCISCO (01/26/2000) - The accounting firm Arthur Andersen plunged into the Internet Economy Monday, announcing its launch of a new $500 million venture capital fund designed to invest in Web startups.
Arthur Andersen says the fund will spend between $50 million and $100 million a year to invest in incubating Web businesses that focus on business-to-business commerce or Internet-based services. The firm will take equity stakes, rather than charge clients its usual advisory or outsourcing fees - a first for any of the Big Five accounting firms.
Accounting firms are looking to broaden their reach beyond auditing and accounting, and Arthur Andersen made the announcement as part of what it calls its "new business strategy."
The firm also said it had joined into a strategic partnership with U.S. Venture Partners, a Silicon Valley-based VC firm, under which portfolio companies of U.S. Venture Partners will have access to Arthur Andersen's services and global distribution network.
Announcement of the fund follows recent news of Andersen Consulting's launch of its own $1 billion VC fund to invest in Web companies. Andersen Consulting, like Arthur Andersen, is a unit of Andersen Worldwide.
Accounting and consulting firms have struggled to compete for new, young employees with Internet companies and their lure of stock options. Creating these funds would enable employees to own stakes in startups and help entice new employees.
Arthur Andersen's new strategy, however, will force it to be diligent about avoiding potential conflicts of interest. The Securities and Exchange Commission forbids employees of accounting firms to own shares in publicly-held companies that they audit. The firm will therefore be banned from doing audit work for startups in which it invests.