Raising capital from DAFs for your climate startup

Donor-Advised Funds (DAFs) are specialized, tax-advantaged financial accounts which allow donors to make contributions, receive an immediate tax deduction, and then grant to qualified charities over time while the funds grow tax-free. 

Historically, DAF funds have primarily sat in public markets while they awaited their final destination, but that is changing. Now, DAFs represent an emerging pool of capital in private markets (including climate) and can often be deployed in flexible ways that fill gaps for climate entrepreneurs.

Alex Fang is co-founder and executive director of RoundZero. We chatted with him to break down how DAFs work and how you can secure this catalytic form of funding for your startup.

The donor’s role in a DAF 

Once an individual’s funds enter the DAF, a donor might become an advisor to the DAF, but the assets are legally owned by the 501(c)(3) – it’s no longer the donors money. In some cases, donors can direct where the DAF invests money, while in others, the DAF administrator will take the reins, and will occasionally identify, underwrite, and present specific impact investment opportunities to the donor to the DAF.

What DAFs can do

A DAF is essentially a flexible, impact-aligned bank account. As such, it can legally make practically any kind of investment: it can give a grant to a nonprofit, offer a loan, or make an equity investment in a for-profit company, as long as it doesn’t have a controlling stake. It can even grant money to a for-profit utilizing expenditure responsibility through a fiscal sponsor. 

How founders can take advantage of DAFs

Because of the complexity, cost, and IRS rules around broker dealer activities, your most likely path to securing funding from a DAF is by speaking directly to a DAF holder, and persuading them to deploy capital from the DAF. In some cases, if the opportunity is large enough/mature enough (typically $100M+ in offering volume), DAF administrators like ImpactAssets will actively underwrite and then market the opportunity to their clients.

Making private investments via a DAF has a unique set of advantages to the DAF holder.  Returns to the DAF are not taxed, which means that once the DAF holder is ready to direct funds to a nonprofit, they will generate that much more impact.

Where to find DAF cash

1. Look out for opportunities through accelerators
Accelerators and incubators – especially university-affiliated ones – are increasingly creating DAF-powered venture funds, tapping into alumni donors and institutional backers. Returns are then recycled back into the accelerator ecosystem to help the next generation of startups.

2. Check out community foundations 
A huge amount of DAF capital is held in local community foundations. So, rather than tracking down 100 individual DAF holders, pitch the foundation directly – e.g. Silicon Valley Community Foundation. Introduce your startup as a local high-impact venture that will likely be of interest to their DAF holders.

3. Find your community
Many DAFs are organized around shared identities or affiliations, e.g. the Bay Area Jewish Federation has a huge DAF with an impact investing bent. If you or your startup has a particular religious or cultural affinity, see what relevant groups with established DAFs are out there.

4. Hustle at events
Find out where DAF account holders who care about climate are gathering, and go there. For instance, for a few thousand dollars you can open a small DAF at Silicon Valley Community Foundation – this will get you on their mailing list and invited to every relevant event they host. There, you’ll meet the most enthusiastic climate-focused DAF holders and potentially secure a fair amount of capital.

5. Impact investor groups
Members of impact investor groups such as Toniic often have DAFs, and will use them to invest in opportunities presented to the group.

6. Crowdfunding platforms 
A small number of specialized crowdfunding platforms allow people to invest from their DAF – e.g. CataCap.

7. Going to funds
Another route is through funds that aggregate DAF money for commercial investments. For instance, the angel group E8 has a DAF, so pitching them will put you in front of both individual members and the aggregated fund.

Convincing DAFs to deploy cash

1. Promise and deliver impact updates
For a DAF investor, impact comes first, so your pitch should spotlight this over returns. But their interest in your impact won’t stop once they invest – people want to hear about both your company’s growth and its progress in combating climate change. 

Make it clear from the onset that investors will receive regular updates and impact reports, and take the time to follow through – this will build the relationship and increase the likelihood of follow-on investment. 

2. Cater to capital preservation concerns
The incentives for DAF investors are fundamentally different from those of traditional investors. They prioritize liquidity and capital preservation – because while they might want to invest the money impactfully, they need it to be available for a future donation.This means you’ll often have more success convincing a DAF holder or manager if you offer a debt instrument over equity. Providing predictable repayments – even over a longer timeframe – will be a much easier sell, as they’ll greatly prefer this security to the uncertainty of equity.

Alex Fang is Co-Founder of RoundZero, a philanthropic venture platform mobilizing catalytic capital to accelerate lab-to-market innovation and support founders addressing complex global challenges. Through RoundZero’s Venture Philanthropy-as-a-Service (VPaaS) model and Donor-Advised Fund–based structures, he works at the intersection of philanthropy, venture capital, and innovation ecosystems to unlock early-stage, impact-oriented technologies.  Alex is also the Vice President of Social Impact at OneValley and serves as Chair of the LG NOVA Coalition for the Future.  Across his work, Alex is focused on building durable capital infrastructure and innovation platforms that enable researchers and founders to translate breakthrough ideas into market-ready solutions at scale.