Philanthropy: Deploy. Don’t Donate. Part I
(Previously Published on Medium)
The original conceit of impact investing was to chart a new course: one that didn’t force a choice between pure philanthropy and pure profit. When private equity moved in, armed with scale and efficiency, the market defaulted to what it knew best: maximizing returns. In the process, the idealistic middle ground hollowed out.
By 2024, private equity had claimed nearly half the impact investing market. According to the Global Impact Investing Network’s (GIIN) Sizing the Impact Investing Market 2024 report, 43% of all impact assets under management now sit with private equity. That nearly half of all AUM in impact investing now flows through traditional vehicles in pursuit of traditional returns is, in itself, the verdict — res ipsa loquitur.
Still, that isn’t the scandal. If anything, it confirms that impact can be measured in basis points as well as moral points. The real question is harder: if private equity can deliver market-rate returns while claiming ‘impact,’ is it doing anything the market would not have done on its own?
The idea isn’t new. Milton Friedman observed decades ago that a company’s primary duty is to maximize profits, provided it conforms “to the basic rules of society, both those embodied in law and those embodied in ethical custom.” In many ways, impact-labeled private equity fits neatly within that model: profit first, with responsibility as a constraint. Impact, so long as it’s margin-accretive. But even this has its limits.
There are impact-related problems that the market won’t naturally intervene to solve. Not because they are not real, but because they do not clear the IRR threshold. Their timelines are too long, their margins too thin, and their impact too diffuse to sit cleanly on a balance sheet. In these spaces, traditional capital recedes. But these are the places where capital that is patient, risk-tolerant, and unbound by short-term thresholds, can move in.
One option stands apart as both abundant and potentially underutilized: donor-advised funds (DAFs). Unlike other traditional philanthropic vehicles, DAFs can deploy patient capital with fewer procedural hurdles. And unlike impact-focused private equity, they are free to pursue longer-arc opportunities where financial and societal value creation requires patience. That makes them uniquely positioned to deploy patient capital through recoverable grants, program-related investments, or first-loss positions, to power investments that would otherwise go unfunded.
Imagine donor-advised funds backing modular housing startups that can close the growing urban housing deficit. Or early-stage nuclear ventures that could supply the energy infrastructure needed to power the next generation of artificial intelligence. These investments don’t just bridge public and private interests — they extend the frontier of what markets alone will not finance.
The gaps that need to be filled are no longer at the periphery.
Economists have long identified three fundamentals that determine why one country grows economically over another: capital, labor, and productivity. Yet across all three, the warning signs are clear. Startup formation — a primary engine of innovation and productivity — has been in steady decline for decades.
In the 1960s, the average lifespan of an S&P 500 company was around 50 years. Today, it is closer to 15. Sustaining early-stage innovation and the capital flows that make it possible is no longer discretionary. Without it, the system is not just vulnerable. It is unsustainable.
A small number of donors and sponsors are already deploying their DAFs with greater strategic clarity. But the majority remain dormant. DAFs are not a workaround; they are a philanthropic tool built for flexibility and, when necessary, for risk. In a market where traditional capital seeks exits and traditional philanthropy seeks certainty, DAFs remain one of the few vehicles with the latitude to fund long term forward-thinking.