Rules Before Runways: DAF Capital for Open Regulatory Frameworks

(Previously published on Medium)

For decades, philanthropic capital has been viewed as a reactive layer in the architecture of technological and societal advancement. This framing has confined it to plugging deficits, sustaining legacy institutions, and funding causes that offer little in the way of margin-accretion for mission-focused for-profits. Of course, this is the primary purpose of philanthropic capital. But its inherent potential, including its ability to absorb risk, fund long-horizon innovation, and establish pathways for change, remains underutilized. It is important that we rethink not just the role of philanthropy, but the entire capital architecture of nonprofit capital itself.

Before innovation can scale, the frameworks that govern its emergence (rules, standards and protocols) determine its trajectory. Some ventures succeed despite these gaps, but often at a cost. OpenAI’s early phase as a nonprofit research lab demonstrated how mission-driven funding can absorb uncertainty and prepare the ground for systemic shifts¹. However, the frictions visible today are not failures of the model but evidence that this architectural space must evolve.

One company’s policy on equity donations might seem trivial against the backdrop of global innovation. Beneath the surface, however, this signals something deeper: a system not designed to handle the complexity of frontier-level innovation, and nonprofit structures ill-equipped to recycle the value they help create. When an early-stage, mission-driven venture generates exponential valuation and that value potentially becomes difficultin public hands, the issue is not internal governance alone. It is a structural deficiency; our systems lack pathways for this type of public benefit to recirculate and compound.

The question is not whether we should finance more mission-driven experiments. We should. The real test comes after they succeed, and when value, initially attained with public-spirited capital, becomes difficult to recirculate. The next transformational venture may operate as a for-profit with a mission layer, backed by donor-advised fund (DAF) capital deployed through program-related investments.² Early examples — such as PRIME Coalition’s climate-tech investments demonstrate that these structures are possible and that pressure is mounting to expand them.³ We are learning that this structure is possible, and growing pressure on philanthropic assets suggests that they may soon be essential.

Would OpenAI have become what it is if it had not started as a mission-driven venture? Almost certainly not. Its nonprofit origins were a structural advantage. That freedom likely allowed long-term research without the immediate pressure for commercial viability. That same structure likely allowed for the ability to attract exceptional talent in the form of researchers and engineers who were driven by purpose. Furthermore, this foundational focus on systemic impact as opposed to product-market fit helped set technical and ethical baselines for an entire field. Even after significant follow-on commercial capital arrived, those principles remain deeply embedded in a company now positioned to lead the race toward general intelligence.

The lesson here is not about one company. It is easy, almost too easy, for critics to point to their internal policies as emblematic of mission failure or corporate capture. Or to dismiss it as procedural friction, when it may be a safeguard against the dilution of mission. Equity grants often come with conditions, such as rights of first refusal or transfer restrictions, especially in privately held companies with complex capitalization tables. These restrictions may exist to avoid voting rights dilution. Existing investor agreements, including those with major backers like Microsoft, might limit who can hold or receive equity to maintain control over ownership and governance. There are a host of reasons that may become more complex when a company exists in a hybridized model.

But such reductionism misses the systemic challenge we face: the absence of frameworks to channel philanthropic capital toward high-risk, high-reward innovation while ensuring value recirculation. Critiquing a company’s legal mechanics is a superficial fix; what is needed is a deeper reckoning with the models of capital deployment and return that demonstrate that frontier innovation serves the public good. The challenge is not a singular company’s governance. It is the vacuum of scalable, institutional pathways for philanthropic funds to incubate and reinvest in transformational technologies.

Donor-advised funds are also able to fund the intellectual and regulatory groundwork that underpins emerging industries. These vehicles can support nonprofit labs, fund public education campaigns on regulatory issues, produce model frameworks and case studies, establish think tanks, provide legal advocacy, and back pilot projects that influence how new fields like AI, biotech, Web3, and climate tech are regulated. Though not as glamorous as the moonshots, these undertakings are also essential.

Innovation depends on governance structures that are adaptive, transparent, and inclusive. Without them, systems are unstable and prone to failure. Donor-advised funds can act before commercial or public capital enters, providing the infrastructure that allows innovation to scale safely. This is how early internet governance frameworks were established; a coalition of technical bodies, researchers, and nonprofit foundations (the Internet Society, IETF, W3C, etc.), came together to set open standards that resisted monopolistic control and created interoperable, global systems.⁴ Their investments, including philanthropic capital and public-interest advocacy, ensured that the early internet evolved as a resilient and inclusive system.

If philanthropic capital does not enter this space, through DAFs or otherwise, regulatory frameworks risk being shaped solely by incumbents and private interests. This creates closed systems that consolidate power and exclude the diversity of thought and participation that innovation needs to scale responsibly. Philanthropic capital is not a substitute for market or public funding. But, it is a foundational layer that enables resilient, inclusive systems to emerge.

This is the moment for forward-looking philanthropists to recognize their role in shaping the foundational rules of future economies. By supporting not just ventures but also the frameworks that govern them, donor-advised funds can ensure that frontier innovation is not simply a race for scale. It can become a deliberate effort to build systems that are open, robust, and enduring.

Further:
¹ OpenAI. “Charter.” 2018.
² Internal Revenue Service. “Program-Related Investments.” Updated 2023.
³ PRIME Coalition. “Catalytic Capital: Investing for Impact.” 2021.
⁴ Internet Society. “Internet Society Board of Trustees Approves Donation to Support W3C Stewardship of Open Web Platform.” January 31, 2012.