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Marc Andreessen may be done with Delaware, though Delaware is not quite done with him. Andreessen Horowitz, the tech-led investment firm he co-founded, put out a letter on Wednesday saying its primary asset management subsidiary, AH Capital Management, would move its incorporation out of the state that houses, from a legal perspective, most of the biggest US companies.
For decades, the small mid-Atlantic state reigned supreme for its technocratic approach to corporate law. But one of Delaware’s charms is also becoming a nuisance for some: its attentiveness towards the rights of minority investors. That has come to a head in recent messy court fights, such as that over Tesla’s $56bn pay package for Elon Musk, rejected in Delaware despite shareholders approving it twice.
Facebook owner Meta Platforms is about to get an up-close view of Delaware’s approach. Some of its shareholders blame Facebook’s board for the data privacy issues that resulted in large financial penalties. The case goes to court next week. Andreessen, a director of Meta, is set to testify.
As his letter notes, Andreessen is no fan. “Delaware courts can at times appear biased against technology start-up founders and their boards,” he writes. “Litigation — even where successfully defeated — is costly and time consuming.” He is right that litigation can be long and expensive. It also, though, provides an effective way to police misconduct and set corporate governance standards.
Big shareholders, notably venture capitalists and private equity managers, are unafraid these days to speak out about aspects of corporate law that they find overtaxing. For now, big investors such as BlackRock, T Rowe Price and Fidelity — often themselves the minority shareholders whose interests courts are considering — have said little.
But if not Delaware, then where? Texas has sought to create — at speed — a company-friendly legal environment. Andreessen, though, says Nevada is even friendlier. The so-called Silver State has a decades-long reputation for insulating directors from liability, and making it hard for shareholders to bring lawsuits or agitate effectively.
Andreessen Horowitz hopes its own fund-level decision will get start-ups to consider a move themselves. That seems a stretch: for most companies, a shift to Nevada would risk a backlash from investors. Meanwhile, Delaware has in the last two years amended its law to place some limitations on shareholder lawsuits, an effort that Andreessen Horowitz both credited and proclaimed insufficient.
Scholars have long debated to what extent corporate governance standards impact a company’s valuation. Musk and Andreessen are two among many tech titans conducting real life tests that may help answer that question. Investors and fund managers, for now at least, seem prepared to let them.