Andreessen Horowitz leaves Delaware for Nevada, tells startups to follow

The Silicon Valley venture capital firm Andreessen Horowitz is reincorporating its business from Delaware to Nevada and calling for its portfolio companies to do the same — citing concerns over bias in the state “against founders and their boards.”

The firm said on Wednesday the decision was driven by growing unease with Delaware’s Court of Chancery, which it accused of injecting an “unprecedented level of subjectivity” into judicial decisions. In a blog post, legal and policy leaders from Andreessen Horowitz argued that recent rulings have undermined the business protections in the state that historically helped make Delaware the default choice for tech companies.

Some startups hesitate to leave Delaware “based in part on concerns for how investors will react,” wrote Jai Ramaswamy, Andy Hill and Kevin McKinley in the blog post. “As the largest VC firm in the country, we hope our decision signals to our portfolio companies, as well as to prospective portfolio companies, that such concerns may be overblown.”

The firm’s decision reflects growing frustration among Silicon Valley figures over Delaware and its Chancery Court. Elon Musk in particular has publicly slammed the state after a judge blocked his roughly $56-billion pay package, the largest ever awarded to a U.S. executive.

Musk responded by reincorporating Tesla Inc. in Texas in June, which recently launched a business court system. He has also incorporated other businesses in Nevada. Musk has been joined by major companies making the move, including Dropbox Inc., Tripadvisor and Bill Ackman’s Pershing Square Capital Management. Meta Platforms Inc. considered a similar transition, Bloomberg reported in January.

Delaware has been the country’s incorporation hotspot for nearly 100 years. More recently, Nevada and Texas have begun to cut into that advantage by offering corporate statutes that give directors more investor-lawsuit protections, and corporate titans like Musk more say in organizing and running their companies. At the same time, critics have said the states are sparking a “race to the bottom” in terms of corporate-governance restrictions.

Business incorporation fees are critical to Delaware’s economy: They generate more than a quarter of the state’s $6-billion annual budget. Delaware has responded to recent departures with legislative reform efforts aimed at stopping the exodus.

Andreessen Horowitz has been incorporated in Delaware since its founding in 2009. The firm previously recommended its startups do the same. The majority of U.S. companies remain incorporated in the state — Delaware houses over 2 million businesses and more than 60% of the Fortune 500.

“We could have made this move quietly, but we think it’s important for our stakeholders, and for the broader tech and VC communities, to understand why we’ve reached this decision,” the firm wrote in the post.

Urbano writes for Bloomberg.