The Disruptive Force that is Donor Advised Funds

From The Chronicle of Philanthropy, January 16, 2024:

Advertising for donor-advised funds often features a cute photo of a piggy bank — a visual representation of the funds as charitable savings accounts. Marketers, however, could soon add images of a Swiss army knife.  Sponsors and donors are deploying DAFs in a host of philanthropic configurations. The funds are turning up in grant-maker collaboratives, impact investing, and planned giving. Several DAF sponsors — new ventures as well as old-guard enterprises like Morgan Stanley’s charitable arm — are encouraging corporate America to add DAFs to benefits packages. The funds, the pitch goes, are the charitable equivalent of individual retirement accounts, and companies can avoid awkward matching contributions to a politically charged nonprofit and instead give to the employee’s DAF.

Daffy, a company founded during the pandemic by Silicon Valley entrepreneurs Adam Nash and Alejandro Crosa, created workplace-giving accounts last year and landed tech companies like OpenAI as clients. It’s also fashioning funds as giving vehicles for almost every occasion — as presents, as vehicles for family bonding, and as the backbone of personal fundraising campaigns for a charity or cause. Unlike most DAF sponsors, Daffy doesn’t charge fees based on account assets. Rather, account holders with $100 or more in a fund pay a membership fee that’s as little as $3 a month.

“I think this is actually the start of what’s going to look like a decade or more of these types of features spreading throughout the industry,” says Nash, who has worked for such consumer giants as Apple and LinkedIn. DAF popularity — and the nearly $230 billion stashed in them — has attracted for-profit entrepreneurs who want to expand or tap into the market. It’s not likely that all the new enterprises will survive a shakeout, but “it’s something that the venture-capital community is paying a lot of attention to right now because there is so much momentum behind DAFs,” says Brad Saft, founder of DonorAdvisedFunds.com, which is building an algorithm-based consumer ranking of DAF sponsors.

At least two DAF-related companies — Chariot and Charityvest — have launched from Y Combinator, the famed Silicon Valley start-up incubator. Chariot created a payment system for nonprofits so that their donors can make online DAF contributions in three clicks. Charityvest sponsors accounts tailored for average Americans who want to set aside cash each month to meet annual giving goals. “Anyone can create a donor-advised fund in 90 seconds,” says co-founder Stephen Kump.

In August, Charityvest created the option for individuals or charities to open “community funds” to raise money for a cause. Account holders include a bride and groom with a charity-themed wedding as well as such nonprofits as Giving Gap and GiveDirectly.

. . . 

darryll k. jones