Launch your own Impact Venture Capital Fund using Donor-Advised Funds

These fast-growing and creative sources of capital are now being used for direct impact investing in for-profit ventures, and LOHAS Advisors can serve as your donor-advised fund manager to enable your social or environmental impact investing vision.

What are Donor-Advised Funds (DAFs)?

DAFs are philanthropic and social impact investment tools that allow donors (individuals, families, corporations, etc.) to fund special accounts through DAF “sponsor” organizations. Donors receive immediate U.S. income tax deductions and maintain allocation privileges over the fund’s distribution.

Do you or your client already have a DAF?

Donor-Advised Funds meeting
What are the benefits of DAFs?

In addition to the tax relief benefits, DAFs provide advantages over other tax avoidance strategies such as private foundations (PFs):

  • Greater tax offset on cash contributions (deductible up to 50% of adjusted gross income for DAFs versus 30% for PFs)
  • Easier allocations of securities and other property
  • More flexibility on timing of allocations (DAFs have no requirement like PFs to distribute 5% of assets annually)
  • Substantially less fees and tax reporting requirements

In addition, DAFs provide a degree of privacy not possible with PFs. The tax returns that PFs file are publicly available, disclosing the foundation’s financial activities, while DAF sponsors typically report their donations in aggregate, not sharing individual donor identities or activities. 

How has the market embraced DAFs?

While adoption of DAFs started slowly, capital is aggregating quickly, and DAFs have become a leading tool for donation and investment in the social and environmental impact sectors. According to the 2019 Donor-Advised Fund Report of the National Philanthropic Trust, assets in DAFs now total over $121 billion, with over $37 billion in new DAF contributions in 2018 alone.

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0
0
0
0

Total Assets in Donor-Advised Funds ($B)

Total Assets in Donor-Advised Funds ($B)

Total Assets in Donor-Advised Funds ($B)

$70.05

$70.05

$70.05

$77.18

$77.18

$77.18

$86.45

$86.45

$86.45

$112.10

$112.10

$112.10

$121.42

$121.42

$121.42

2014

2014

2014

2016

2016

2016

2017

2017

2017

2018

2018

2018

2015

2015

2015

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0
0
0
0
0

Total Value of Contributions to Donor-Advised Funds ($B)

Total Value of Contributions to Donor-Advised Funds ($B)

Total Value of Contributions to Donor-Advised Funds ($B)

$19.91

$19.91

$19.91

$21.42

$21.42

$21.42

$25.06

$25.06

$25.06

$30.90

$30.90

$30.90

$37.12

$37.12

$37.12

2014

2014

2014

2016

2016

2016

2017

2017

2017

2018

2018

2018

2015

2015

2015

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Notably, there are now over 728,000 individual DAFs across the U.S., and the number of DAFs grew an astonishing 55% from 2017 to 2018. Contributions to DAFs have also continued to increase as a percent of total individual giving over the last decade.

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0
0
0

Total Number of Donor-Advised Funds

Total Number of Donor-Advised Funds

Total Number of Donor-Advised Funds

241,507

241,507

241,507

272,845

272,845

272,845

289,478

289,478

289,478

463,622

463,622

463,622

2014

2014

2014

2016

2016

2016

2017

2017

2017

2018

2018

2018

2015

2015

2015

0
0

463,622

463,622

463,622

728,563

728,563

728,563

2017

2017

2017

Slider
Conference Room of people discussing Donor-Advised Funds
0
0
0
0
0

Total Number of Donor-Advised Funds

Total Number of Donor-Advised Funds

Total Number of Donor-Advised Funds

241,507

241,507

241,507

272,845

272,845

272,845

289,478

289,478

289,478

463,622

463,622

463,622

2014

2014

2014

2016

2016

2016

2017

2017

2017

2018

2018

2018

2015

2015

2015

0
0

463,622

463,622

463,622

728,563

728,563

728,563

2017

2017

2017

Slider
Contributions to Donor-Advised Funds Graphic

Source: 2019 Donor-Advised Fund Report, National Philanthropic Trust, https://www.nptrust.org/reports/daf-report/

Why use DAFs for impact investing versus just donations?

The individual and organizational clients (and their advisors) with which LOHAS works recognize the multiplier effect and “perpetual” nature of investing in companies or funds compared to making one-time grants. When intelligent investments are made through a DAF, in addition to the social or environmental benefits of the venture, real financial returns can be generated and returned to the DAF for future investments. For-profit social enterprises have the capacity to generate ongoing benefits to society and investors versus traditional philanthropic models in which regular donations are required.

How can DAFs be used as instructional, legacy-building tools?

Due to the risk-free nature of DAF investments, DAFs can serve as an ideal investment training ground for children and young adults. Not only are children provided with the opportunity to invest in the socially and environmentally impactful areas of most interest to them, but also parents can establish a legacy of giving to causes the family cares about in a way that is simultaneously instructive in essential areas of traditional private investing (such as performing due diligence, structuring deals, evaluating returns, etc.). In essence, DAFs can serve as de facto impact venture capital funds with donors (or their designated representatives) serving as fund managers.

How can DAFs be used for impact investing?

There are a variety of ways in which the capital held in DAFs can be invested to further one’s impact goals. For example, they can be the ideal capital to use for early-stage or higher risk investments (that may not align well with the donor’s main portfolio) or invest in funds that support the donor’s passions. Similarly, corporate DAFs provide a simple mechanism for making strategic investments in mission-aligned companies that complement the corporation’s business model or further a stated impact goal.

Currently, most DAF sponsors do not allow DAFs to be used as (for-profit) impact investing mechanisms, and those that do often offer only a limited selection of investment options for donors. However, some DAF sponsors are showing greater flexibility, and DAFs can typically be transferred to other sponsors that better support donors’ impact investing goals. Notably, DAF funds can even be used to pay advisors to help transfer DAFs (when needed), analyze investment opportunities, and deploy DAF capital as effectively as possible towards the causes the donor is most passionate about.

What are some areas of investment interest to LOHAS clients?
Women-founded/led organizations Climate change mitigation
Healthcare issues and access Infrastructure resiliency
Social impact entertainment Sustainable real estate
Place-based initiatives Clean energy and water
Financial inclusion Ocean health
Affordable housing Wildlife and nature conservation
Fair senior housing Sustainable food and agriculture
Social justice Eco-tourism
Education Clean Transportation
Financial literacy
Sustainable waste management
What are some areas of investment interest to LOHAS clients?
  • Women-founded/led organizations
  • Healthcare issues and access
  • Social impact entertainment
  • Place-based initiatives
  • Financial inclusion
  • Affordable housing
  • Fair senior housing
  • Social justice
  • Climate change mitigation
  • Infrastructure resiliency
  • Sustainable real estate
  • Clean energy and water
  • Ocean health
  • Wildlife and nature conservation
  • Sustainable food and agriculture
  • Eco-tourism
  • Education
  • Clean Transportation
  • Financial literacy 
  • Sustainable waste management

How can LOHAS Advisors Help?

The LOHAS team of professionals provide:

  1. Hands-on support setting up or transferring your DAF
  2. Guidance in establishing your impact investing strategy
  3. Deal sourcing and due diligence to satisfy investment goals
  4. Ongoing performance reporting and investment support
Donor-Advised Funds Consultation

How can you get started?

Some things to consider when contacting LOHAS:

  1. Do you already have a DAF established?
    1. If yes, with what DAF sponsor are your funds?
    2. If no, would you like assistance in setting up a DAF?
  2. Does (or will) your DAF hold $100,000 or more in funds?
    1. If yes, LOHAS can immediately help support your impact investing needs.
    2. If no, LOHAS is developing a solution to support smaller funds. Sign up for our newsletter and indicate your interest in this offering when it’s ready.
  3. Are there social or environmental impact areas in which you’re most interested?
    1. If yes, are there specific companies or funds you already know that you may want to support?
    2. If no, LOHAS can work with you to help align your passions with your investment goals.

Closing the Loop on the Impact Investing Return Rate Spectrum

Impact Investing with Donor-Advised Funds Graphic

DAF Impact Investing with LOHAS Advisors

Download our Primer on Donor-Advised Funds and Impact Investing

Frequently Asked Questions

Are there examples of DAFs being used to invest in for-profit ventures?

Yes, while we are still in the early stages of unlocking this capital for impact purposes, there are many examples of investments of this type. Perhaps the most publicized is the DAF investments into Beyond Meat (the plant-based meat alternative company) from the DAF of Impact Assets which yielded big returns for the donors who invested in the company once it went public and has allowed those donors to make substantial further impact investments with those funds.

Similar examples of for-profit ventures that have received meaningful DAF investments include Closed Loop Ventures (a fund investing in circular economy companies) and Kinvolved (delivering solutions to help school districts improve attendance) which received investment from the DAF of the Tides Foundation.

Does LOHAS work with investment, wealth, and tax advisors to help support their clients’ interests in impact investing through DAFs?

Yes, LOHAS is not an RIA, wealth/asset manager, or tax advisor. We focus purely on enabling social and environmental impact investments and allow advisors to offer this additional DAF impact investing service to their clients without concerns over relinquishing client oversight. We also share DAF management fees with the advisors who introduce new donor clients.

How does LOHAS Advisors support investors with their donor-advised funds?

We help parties or their advisors set up new DAF’s using sponsors that support for-profit impact investing, and we can try and work with existing DAF sponsors or help with DAF transfers; but these are just up-front logistical issues. Ultimately, we help serve as our clients’ DAF impact fund managers to help them identify, evaluate, and allocate the capital in their DAF’s to social or environmental impact ventures that align with their passions and investment goals. That includes doing the tracking and reporting on those investments after they’re made.

What are the specific services LOHAS provides to enable DAF impact investing?
  1. Establishing a DAF
  2. Transferring a DAF to a new DAF sponsor (that supports impact investing)
  3. Evaluation of investment goals and impact interests
  4. Development of impact investing mission/framework
  5. Deal sourcing
  6. Investment due diligence
  7. Transaction support
  8. Reporting on investment performance (impact and financial)
  9. Ongoing evaluation of portfolio and support of mission/framework
How does LOHAS get paid for its DAF impact investing support services?

LOHAS charges fixed fees based on the initial services performed (e.g., establishing/transferring a DAF or developing a DAF impact investing strategy). Subsequent DAF management services involving sourcing, due diligence, transaction support, reporting, etc. are typically paid as a percentage of the DAF funds under management. Notably, most fees paid to LOHAS can be paid out of DAF funds, and LOHAS generally defers most fees until one or more investments are executed.

Do DAF sponsors charge fees?

Yes, DAF sponsors charge small management and transaction fees. For example, the Tides Foundation, which is one of the DAF sponsors with which LOHAS works to enable for-profit impact investing, charges DAF management fees based on a tiered structure (1% on the first $100,000; .75% on the next $500,000; .5% on the next $4 million; and .25% on anything beyond) as well as a .5% transaction fee on any direct investments executed. These fees are also paid from DAF funds.

If I already have a private foundation, is there a use for DAFs?

Impact investing in for-profit companies is possible through private foundations as a program or mission-related investment (learn more about PRIs and MRIs in our e-book). While LOHAS works with foundations to enable impact investing through such structures, these approaches are far more burdensome than investing through DAFs, and you may want to consider converting your private foundation (or redirecting funds from your private foundation) into a DAF. LOHAS can help guide those activities.

Can DAF’s be a tool in the COVID-19 recovery toolbox?

Absolutely. DAF’s are an ideal source of capital for investing, for example, in healthcare ventures that may address virus prevention or recovery or solutions that might help those hardest hit by COVID. Traditional investment portfolios may have been adversely impacted by post-outbreak stock market gyrations making many less likely to invest their capital in social or economic recovery, but DAF capital has already been donated so these are risk-free funds, and we need them invested in these types of endeavors now more than ever. So if you have not already set up a DAF, tell your tax or wealth advisor to make that part of your tax plan (and if they don’t know how to do that have them contact LOHAS Advisors) and if you already have a DAF, consider deploying those funds to support ventures addressing virus outbreak-related issues.

LOHAS Advisors works with individuals, family offices, and corporations as well as the advisors that support them to enable impact investing from DAFs. To start your own DAF impact investing journey or for more information on LOHAS’ DAF offering, contact our Advisors today.

More on Donor-Advised Funds

Become an Impact Venture Capitalist using Donor-Advised Funds

Become an Impact Venture Capitalist using Donor-Advised Funds

This article was originally published on GreenMoney Journal. You can view that article here.  Donor-Advised Funds (“DAFs”) are quite the hot topic in the world of philanthropy and impact investing. Seems everyone has a perspective on how DAFs could be better utilized...