As earlier reported, Andersen's plan will include the creation of 17 so-called launch centers, situated around the world, for companies that have already won funding but have not yet made a public offering. In exchange for access to computers, administrative assistance and consulting help, Andersen expects to receive as much as $1.2 billion in equity in these companies over the next three years.
The prot?g? companies will already have venture capital backing, an executive team and a strong business plan, yet they will need guidance to move closer to an IPO, according to Andersen executives. That guidance will include everything from providing a temporary vice president of marketing to connecting a company with the right software vendor to build a catalog for its Web site. Andersen's software partners include business-to-business e-commerce companies Ariba and Commerce One, along with front-office software maker Siebel Systems and database software giant Oracle.
The plan underlines the growing trend of the privately held "Big Five" accounting firms--Andersen, KPMG, Deloitte & Touche, Pricewaterhouse Coopers and Ernst & Young--as well as more conservative management consulting firms such as McKinsey, to take equity in lieu of payment from cash-strapped start-up clients. Such dot-com investments serve a dual purpose: They enable the consulting firm to reap the rewards of a successful IPO and position the consultancy as the services firm of choice for Net start-ups that have the potential to grow into the next Amazon.com.
Andersen executives said the plan differs from the many "incubator" programs other services firms have launched because it targets start-ups after the companies have made some progress.
"There's this treacherous period (when) the team is small, they've got limited economic resources, and what they do in those next 90 to 180 days--getting to the next milestone--is where many of them fall off track," Mary Tolan, a global managing partner at Andersen, said in an interview.
In December, Andersen said it was forming a venture capital unit and planned to invest up to $1 billion over the next five years in Net companies.
Andersen executives did not comment on how cash from either of its new equity arrangements will be divided among the company's partners, or whether profits will trickle down to the firm's rank and file. An $8.3 billion firm, Andersen has 65,000 employees in 48 countries.
In a separate announcement, KPMG, which is laying the groundwork for a public offering sometime later this year, today detailed a new practice to provide consulting and other services for Web businesses.
KPMG said it has teamed with Microsoft and developed a newly formed unit, dubbed the "Microsoft Dot.com Practice," to provide companies with strategy, branding, creative design, Web technology integration, marketing and application hosting services using the Windows 2000 operating system.
Tom Rodenhauser, an analyst at ConsultingInfo.com who follows the Big Five, said these plans are a way for clients to leverage the giants' expertise without paying the high price tag. Yet Rodenhauser said he still finds troubling the notion of a Big Five firm serving as a start-up's consulting company as well as investment partner.
"At some point, the client will look at the double billing model and question it," he said, arguing that the role of the venture capitalist and the consultant should be separate to ensure what will be best for the client in the long term.
"You can't call yourself a partner if you cash out immediately post-IPO," he added.
Andersen's Tolan said the arrangement works for both sides--and that there is nothing wrong with it.
"We think it's healthy," she said. "Our clients love it and frankly some of the taboo around this--we found at the end of the day it wasn't there."
"This really is the future of consulting," she added. "What we can see is that this is going to revolutionize our industry."
Andersen's launch centers will be situated in Atlanta; Boston; Chicago; Palo Alto, California; Dublin, Ireland; Frankfurt, Germany; Helsinki, Finland; Johannesburg, South Africa; London; Madrid, Spain; Milan, Italy; Paris; Sao Paulo, Brazil; Singapore; Stockholm, Sweden; Sydney, Australia; and Tokyo.