Incorporating Unicorns: An Empirical Analysis

Abstract

There is a growing concern among regulators and academics about how to regulate unicorns - entities large enough to have a public impact yet remaining in the private domain. An examination of corporate charters within a selected sample of unicorn firms reveals an important finding: 97% of these entities are incorporated in Delaware. This concentration provides Delaware with significant leverage to shape regulatory frameworks, especially concerning the protection of parties who may lack the ability to safeguard their interests through contractual means.

This groundbreaking discovery on the dominance of Delaware showcases a substantial deviation from incorporation trends in other business segments. While 79% of public firms and 67% of early-stage venture-backed private firms are incorporated in Delaware, only 2% of small private enterprises do so. The overwhelming preference for Delaware among unicorn firms is a distinct and unprecedented trend, raising intriguing questions about the specific factors driving this exceptional pattern. As unicorns evolve and continue to develop as market movers, Delaware's position as their incorporation venue of choice will only grow in importance and relevance, especially due to the recent debate over changes to Delaware law and the competition among states to attract businesses.