Andreessen Horowitz, one of the largest venture capital [VC] firms in the country, announces Wednesday it will be reincorporating in Nevada despite recent Delaware corporate law changes made to appease concerned companies.
In a statement written by the company's Chief Legal Officer Jai Ramaswamy, general counsel for the Growth and Venture teams Andy Hill and government affairs supporting partner Kevin McKinley, the contributors say Delaware "used to be a no-brainer" when choosing which state to start a company in.
"That is no longer the case due to recent actions by the Court of Chancery, which have injected an unprecedented level of subjectivity into judicial decisions, undermining the court’s reputation for unbiased expertise. This has introduced legal uncertainty into what was widely considered the gold standard of U.S. corporate law. In contrast, Nevada has taken significant steps in establishing a technical, non-ideological forum for resolving business disputes," the announcement reads.
Andreessen Horowitz's departure comes after significant turmoil within Delaware's premier corporate law system.
The beginning of the fallout can largely be attributed to Chancellor Kathaleen St. J. McCormick's January 2024 decision to block what would be the largest CEO compensation deal in U.S. history — a pay package worth $56 billion — for Tesla CEO Elon Musk.
In 2018, it's reported that over 70% of shareholders voted to approve the pay package, but several stockholders brought a lawsuit forward against Musk, arguing the deal breached fiduciary duties owed by Musk and the defendant directors to Tesla and its stockholders.
In December 2024, Chancellor McCormick ultimately sided with the plaintiffs and reaffirmed her decision after shareholders voted to approve the pay package for a second time last year.
Musk has publicly defamed Delaware's esteemed Court of Chancery system over the ruling and has since reincorporated Tesla in Texas.
Other big-name company exits were soon to follow, including Tripadvisor, Dropbox and Pershing Square Capital.
Fearing a "mass exodus," which would threaten Delaware's second largest revenue source behind personal income tax, state leaders crafted Senate Bill 21.
The bill would provide safe harbor procedures for controlling stockholders during conflicted transactions and lower the thresholds necessary for those transactions while raising the threshold necessary for shareholders to make books and records requests — ultimately making it more difficult for investors to bring litigation forward.
Andreessen Horowitz's team commends several of the changes made within SB 21, but they argue the legislature's actions "fail to take full measure of the problem."
"In particular, Delaware courts can at times appear biased against technology startup founders and their boards. Litigation – even where successfully defeated – is costly and time consuming, particularly for the tech startups that need every penny they raise to build innovative companies. The resulting legal uncertainty is a real cause for concern for entrepreneurs and their professional investors who often sit on their boards. As a result, many of the companies we fund and the entrepreneurs that we talk to are taking a second look at whether they should incorporate in other jurisdictions," the statement reads.
The remainder of the announcement pits Delaware's business court system against Nevada's court system, arguing Nevada has a more predictable corporate law structure by codifying the business judgment rule in statute, permitting broad protections against individual liability for officers and directors and providing only 15% or greater stockholders the right to inspect books and records.
"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. For founders considering a similar move, there is often a reluctance to leave Delaware, based in part on concerns for how investors will react," the statement reads. "As the largest VC firm in the country, we hope that our decision signals to our portfolio companies, as well as to prospective portfolio companies, that such concerns may be overblown. While we will continue to fund companies incorporated in Delaware, we believe Nevada is a viable alternative and may make sense for many founders."
Andreessen Horowitz's announcement comes just one day after Gov. Matt Meyer — a fierce defender of Senate Bill 21 — told members of the press the First State has seen an immediate turnaround following the changes made by SB 21.
“Our corporate franchise numbers are really good and they have improved since I signed Senate Bill 21 into law. We'll be releasing that – we're not quite done refining that information. We'll make sure that once we have the data, we get it out," Gov. Meyer said.
The announcement also comes during ongoing litigation over the constitutionality of SB 21.
The first lawsuit came just weeks after the bill was signed into law — Plumbers & Fitters Local 295 Pension Fund is suing Dropbox, Inc. in the Delaware Court of Chancery following the file-sharing company’s decision on Jan. 28 to reincorporate in Nevada.
The suit remains under seal, but a summary of the filing says the plaintiffs are seeking a declaration that the changes to Delaware’s corporation law made last week are unconstitutional and also seek relief for Dropbox’s “breach of fiduciary duty related to an effort to reincorporate.”
Additionally, as reported by Bloomberg Law, the Delaware Supreme Court has decided to take up the constitutionality of SB 21 directly via Thomas Drew Rutledge v. Clearway Energy Group LLC, et al.
The case is not on the high court's July calendar.
The Delaware Department of State did not immediately respond to a request for comment.
