The Untapped Strategic Capital of Donor-Advised Funds
(Previously published on Medium)
Philanthropy is on the cusp of discovering how best to use a resource long underestimated: donor-advised funds (DAFs). These philanthropic vehicles let donors place irrevocable contributions of personal assets into a sort of ‘waiting room’ until they’re ready to be directed toward charitable causes. At any moment thereafter, donors may recommend that capital to worthy initiatives.
And their breadth is breathtaking. Currently, more than one in four dollars that individual Americans donate to charity goes into a DAF.¹ Yet, public awareness of them remains remarkably low. That is by design.
Fidelity Investments — the parent company of the largest DAF sponsor (and the largest charitable organization today) — found in one study that 64% of its investment clients had ‘no idea’ what donor-advised funds were.² This presents a problem. If over a quarter of all charitable dollars flow into DAFs, yet awareness remains low outside of the world of philanthropy, the data suggests that there is disproportionate usage of DAFs among certain segments of donors.
The numbers cannot be overstated. Donor-advised funds currently hold nearly a quarter of a trillion dollars in assets— comparable to the total assets under management across the U.S. venture capital industry. That figure alone begs us to reconsider how we approach their potential.
In order to better appreciate ways to maximize their possibilities, it is important to first understand the fundamentals of donor-advised funds.
Donors are invited to make irrevocable contributions to a charitable fund (the DAF), receive an immediate tax deduction, and then recommend grants to the DAF manager over time. This structure gives donors a level of flexibility and strategic control that traditional foundations simply do not have. Beyond that, DAFs have begun to blossom into something greater than simple repositories of charitable capital: visionary donors now treat them as sophisticated instruments for stewarding philanthropic capital — quietly but powerfully shaping the future.
DAF-giving differs from traditional charitable giving in two especially meaningful ways:
Expanded Strategic Control. By placing assets in a DAF, donors secure immediate tax benefits while retaining the ability to be deliberate in when and where to deploy capital. This thoughtful timing can make philanthropy feel like an art.
Potential for Compounding Impact. In some cases, DAF assets can be invested in socially responsible or mission-driven for-profit vehicles — generating returns that flow back into the DAF itself. This creates a compounding effect: donors can deploy strategies honed elsewhere in their financial lives to nurture both returns and mission impact. Traditional charitable donations, in contrast, are typically exhausted at the point of use. Once utilized, those charitable dollars go to zero. DAFs retain the ability to grow, offering a potent mechanism for continuous giving. This dual capacity for strategic flexibility and compounding effect makes DAFs uniquely interesting.
The sheer volume of charitable assets under donor-advised fund management signals two things. First, a growing trust in the model. Second, an immense opportunity for innovation among donors who think like investors.
Yet, despite their expansive promise, they remain absent from most mainstream philanthropic discussions. I might never have taken notice myself, had it not been for a client whose partner envisioned using a DAF to support affordable housing. This opened my eyes to their delicate but vast potential. But donor-advised funds don’t have an issue of visibility ; they have one of vision.
Consider this: while the venture capital ecosystem mobilizes billions each year to chase disruptive startups, DAFs, with funding comparable to that of venture, remain largely untapped. Moreover, DAFs can compound their impact in ways not yet streamlined. By integrating DAFs into a more agile, impact-focused capital stack, donors could potentially generate robust charitable returns while simultaneously accelerating social impact. In this emerging model, the funds would not only serve charitable purposes but would also have a compounding effect for transformative, mission-aligned ventures.
The potential uses of DAFs are as varied as they are compelling. Imagine a scenario in which philanthropic dollars are used to support initiatives like groundbreaking gene therapies that transform healthcare or educational platforms that unlock unprecedented opportunities for distressed education systems. In these cases, the agility of DAFs allow for a strategic allocation of capital that is both measured and innovative.
Recent industry surveys also suggest that the need for such an approach is growing. Wealth holders, particularly among the emerging generation of philanthropists, are increasingly demanding that their capital work harder — delivering not just tax advantages and social good, but also tangible, measurable returns. This mandate challenges the seemingly mutually exclusive concepts of doing good and doing well. Instead, it calls for a more nuanced, integrated model where the allocation of assets from DAFs can unlock new possibilities.
The conversation around DAFs is just beginning to change. In an era where every part of the financial landscape is being scrutinized for its potential to deliver results, donor-advised funds represent a resource that is waiting to be thoroughly explored. Their scale, agility, and potential make them a pretty compelling alternative to the traditional way. In the right hands, they could become not just passive tools for giving, but engines of scalable and lasting impact. At the very least, they deserve a second glance.
Further:
¹ National Philanthropic Trust, 2023 Donor-Advised Fund Report.
² Fidelity Charitable, “What Donors Think: A Survey of Charitable Giving,” 2018.