Philanthropy: Deploy. Don’t Donate. Part II

Impact investing has aligned itself to benchmarks, but the underlying infrastructure remains incomplete. That gap defines the task ahead. In frontier innovation, the paths we must traverse rarely exist in advance. Physical, financial, and regulatory infrastructure is laid only when the first architects begin to move. The ventures that emerge in this space tend to share three traits: they meet a charitable purpose; they target foundational systems like housing, energy, or compute; and they sit outside current market return expectations. That distance from market logic lasts just long enough to deter conventional capital, leaving the leverage to those who move first.

Today, donor-advised fund investments that follow this logic remain sui generis — isolated cases rather than a recognized category. But they exist. In 2016, PRIME Coalition structured an investment into RedWave Energy, a clean energy company working on thermophotovoltaic waste heat conversion. Two DAF sponsors, ImpactAssets and The Boston Foundation, provided capital that supported a $5.85 million Series B financing round. The Boston Foundation issued a recoverable grant; ImpactAssets provided direct equity. DAF capital provided the missing tranche that enabled additional investment from a sovereign wealth fund, a utility-backed venture fund, and ARPA-E.¹

Cases like this prove feasibility, but their rarity points to a design flaw: venture philanthropy has been too narrowly framed. In most discussions, it collapses into blended finance for emerging markets or small-scale risk-sharing for early-stage sectors. Functional in parts, but structurally incomplete.

What’s missing is a framework for funding the in-between: ventures that meet charitable aims and target critical systems, yet fall outside conventional market standards. These are not just market gaps; they are temporal ones. What’s needed is capital precise enough to underwrite emergence. Not capital solely in pursuit of yield, but in service of outcomes that matter.

Donor-advised funds aren’t the only vehicles that can fund early-stage, system-aligned work. Private foundations can and sometimes do. But the model hasn’t scaled. What distinguishes DAFs is not legal structure but operational latitude: they are not bound to program commitments or fixed cycles. That flexibility makes them unusually suited to the temporal demands of early infrastructure where timelines are long, systems interdependent, and policy lags. DAFs won’t replace public or commercial capital, but they can operate in the space where those systems often fail to reach.

The opportunity is clearest in sectors where policy trails demand and investment logic has yet to crystallize. The most effective use of DAF capital is at the edge. The objective is not to bet on disruption, but to supply the preconditions that make later investment possible. The priority lies in building what others assume will emerge on its own: modular homes that need coordinated regulation, energy systems blocked by grid limitations, compute infrastructure where economic rationale has not yet caught up to strategic need. These are not outliers; they are upstream constraints. That these bets may become disruptive is a byproduct, not the aim.

Capital that requires benchmarks rarely funds what comes before them. Sectors seeking proof of purpose must turn to alternative capital, assuming the fundamentals support the investment.

Microfinance offers a useful precedent. It began with a charitable thesis: that access to credit in underbanked nations could unlock entrepreneurship and reduce poverty at scale. Philanthropic funding absorbed early risk, supported experimentation, and helped shape the contours of what is now a $215 billion industry. The scale was real. So was the market infrastructure it left behind. It succeeded on its own terms. The lesson is what it managed to build and how much further this model could go if directed at foundational systems from the start.²

The distinction here is not scale, but aim. Donor-advised funds should not just be underwriting sectors adjacent to social goals, but they should also be used to build the substrate beneath them. The objective is not participation in broken systems, but the development of better ones. Modular housing, resilient energy, distributed compute: these are not incremental fixes, but foundational infrastructure. They are categories where public benefit and market formation intersect and where delay compounds risk. The objective is not to make bad systems more inclusive. It’s to build better systems from the start.

Structured correctly, DAF capital does not exit the system. It recirculates. Recoverable grants and program-related investments return funds to the original account, increasing available capital with or without new inflows. This expands both the capacity for risk-tolerant investment and reserves for strictly charitable use. Over time, the model compounds. What begins as risk absorption becomes a mechanism for iterative system design.

Further:
¹ MIT Innovation Initiative, DAFs and Science-Driven Innovation: A Guide for Deploying Donor-Advised Funds to Advance Breakthrough Technologies, pp. 12 — 13.

² Banerjee, A. et al., “Six Randomized Evaluations of Microcredit: Introduction and Further Steps,” Science, Vol. 348, Issue 6233