How I Accidentally Stumbled into a New Source of Funds for A Nonprofit

Nearly ten years ago, while sitting on the board of a small nonprofit, the Executive Director and I accidentally discovered the hidden revenue stream of Donor-Advised Funds (DAFs) that would prove very beneficial over the years.

We were at an event and started explaining our programs to someone at our table. When he heard about our program, he said, “I have a fund at the community foundation. I can donate to that through my fund. Call me next week, and let’s discuss it.”

As a first-timer in the nonprofit space, I had no idea what “I have a fund at the community foundation” meant. However, as a businessperson, I knew when he said, “I can donate to that through my fund,” which meant the potential for a significant donation was possible if I could figure out how to access it.

I played it cool, pretending to understand what this stranger told me. Then, when I was at my desk the next day, I did my homework. Within a few weeks, I realized a whole world of money was out there, ready to be tapped.

Here is what I learned.

What is a Donor-Advised Fund?

In short, a Donor-Advised Fund (DAF) is where wealthy individuals park money earmarked for donations, which grows tax-free until the money is donated.

Let's take the story of Sarah, an avid supporter of girls in STEM. Sarah chose to open a Donor-Advised Fund (DAF), a philanthropic account managed by community foundations or banks' financial arms. By contributing to her DAF, Sarah enjoyed immediate tax benefits and the flexibility to give grants to her favorite charities over time at her discretion. Her funds, while invested, grow tax-free, amplifying her capacity to support the causes close to her heart.

How I Tapped into DAFs

According to a recent study by the charitable giving platform FreeWill, $229 billion is sitting in DAFs required by law to be distributed to charities.

For nonprofit leaders, understanding and accessing DAFs can open new avenues for funding and donor engagement.

We learned everything we could about DAFs and then solicited the person we met at the event. After only three brief conversations, he gave us $5,000.

Next, we went to our list of donors and friends. For the more prominent donors, we asked directly if they had a DAF; for others, we asked through responses in our newsletter and other communications.

These communications resulted in additional donations. For the donors that were already on our list, we are still determining if they would have donated anyhow. But at a minimum, it gave us an excuse to call and start the conversations.

While we didn't take the next step, knowing what I know now, I would have.

Others I've spoken to since have told me they actively seek donors not currently in their database but who have given to similar causes. They partner with financial advisors, attorneys, and sponsoring organizations (the banks and community foundations that hold the funds) to learn about people with DAFs who are sympathetic to their cause.

While it isn’t a silver bullet, courting DAFs is a great way to add revenue to any nonprofit.

Conclusion and Next Steps

DAFs represent a financial tool with a story of commitment and sustained impact. Engaging with this growing segment can lead to a stable and expanding support base.

Picture the impact of turning your donors' philanthropic visions into lasting legacies. It’s great for them and excellent for you—a true win-win!

I’m considering partnering with a few others to develop a service where we can:

1. Help determine who in your current donor list has a DAF.
2. Find people NOT in your current database that have a pattern of donating to nonprofits like yours, and that have a DAF.

If you’d like to be part of our initial group, leave comment or contact me directly via DM or email to be considered for the select few trial participants.