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A Force in Philanthropy

Chris O'Briend | November 10, 2016 | Story News and Features

Thanks to successful careers in Silicon Valley’s tech industry, Jenise and Kevin Henrikson had been comfortable enough to donate over the years to their favorite local causes. But when Kevin’s startup sold to Microsoft for $200 million in 2014, the couple needed a more organized approach to giving. They weighed a number of philanthropic options, such as creating a family foundation. Eventually, they chose to open a donor-advised fund, or DAF, with the Silicon Valley Community Foundation. By creating a DAF, a kind of foundation within the foundation, the couple avoided the headaches of managing a family foundation. They could lean on the expertise of the SVCF staff to evaluate grants. And they were able to start giving right away rather than waiting months for charitable tax status. “I’m pretty good at knowing what I’m good at,” Jenise says of the decision. “And I know I don’t know a lot about philanthropy.”

Their irresistible simplicity and speed has fueled an explosion in the number of DAFs across the country. Nowhere has that revolution been more in evidence than at the SVCF. On the cusp of its 10th anniversary, SVCF boasts of being the second-largest grant-making organization in the United States, behind only the Gates Foundation. SVCF’s growth reflects both the rising tide of wealth in Silicon Valley and a successful campaign to win the trust of these newly rich. But DAFs have not been without critics. There are questions about transparency because they require no public disclosure. And there are concerns that their tax advantages are too generous while their grant-making requirements are too lax.

For Emmett Carson, CEO and president of SVCF, the benefits of DAFs are unmistakable. That certainty has made Carson one of the leading proponents of DAFs and transformed the foundation into one of the nation’s most influential philanthropic organizations. “In the past, people have had two ways to give,” Carson says. “One, you could pull out your checkbook and write a check. Or, you could create a private foundation, which are very complicated to set up and run. Donor-advised funds open up giving to lots of people in the middle to engage in strategic philanthropy without the bureaucracy.”

SVCF opened in January 2007 following a vote to merge the Peninsula Community Foundation and Community Foundation Silicon Valley. To oversee this merger, the new organization had recruited Carson in November 2006 from the Minneapolis Foundation. From the start, Carson had his eye on increasing DAFs at SVCF as a way to expand the reach of the community foundation’s charitable giving. Although DAFs have been around nationally for decades, their use started to accelerate in 1991 when Fidelity created its own charitable organization to allow clients to make strategic philanthropic investments. As more private financial institutions started offering DAFs through their nonprofit arms, community foundations were left on the sidelines at a disadvantage because they lacked the resources to market and manage separate buckets of charitable funds. But technology began to dramatically reduce the costs and time to manage DAFs and educate donors about them, and in the process, allowed community foundations to scale up their modest use of DAFs.

The 2015 Donor-Advised Fund Report from National Philanthropic Trust shows that as community foundations rushed into the space, grants from DAFs rose 30 percent in 2014 to $12.49 billion. At the same time, contributions to DAFs rose $19.66 billion, or about 7.6 percent of all U.S. charitable giving. Locally, nearly all of the Bay Area’s community funds have embraced DAFs, including The San Francisco Foundation, which had 537 DAFs that raised $114 million in 2014. Earlier this year, the Marin Community Foundation announced it was restructuring to place a greater emphasis on expanding the 450 DAFs it already has. “The speed of donor-advised funds are very attractive to people in this region,” says Ruben Orduña, vice president of development and donor services at The San Francisco Foundation. “They open them quickly, and they are very active giving vehicles.”

Still, SVCF dwarfs them all. SVCF has grown from $1.74 billion in assets in 2007 to $7.3 billion today, with more than 80 percent in various types of advised funds. Of the $821 million in grants made by SVCF in 2015, 70 percent came from advised funds. It has become the largest supporter of Bay Area’s charities, giving $358 million to nonprofits in the nine-county region last year. It only takes $5,000 to open a DAF at SVCF, and gifts can be made in the form of stock, real estate, personal property and other goods that might typically be hard to value and transfer. Only around 15 percent of the DAFs have more than $1 million. About one-third of the funds have balances below $25,000.

Big and small, it’s all been adding up. “Silicon Valley Community Foundation is growing way, way faster than other community foundations,” says Stacy Palmer, editor of The Chronicle of Philanthropy. “The foundation has been fairly smart about the things it’s done to encourage that.” This expansion has been helped by some big gifts from some big names. Facebook co-founder Mark Zuckerberg and his wife, Priscilla Chan, have donated $1.49 billion in stock in 2012 and 2013, some of which was used create a DAF. In 2014, following the IPO by video-camera startup GoPro, co-founder Nicholas Woodman and his wife, Jill, donated $500 million to create a DAF.

“What has been the challenge and the opportunity is that we have had extraordinary growth by any measurement compared to any of our peers due to the generosity of the donors that we have in Silicon Valley,” Carson says. For Carson, though, DAFs are more than just a vehicle for raising more money. This type of giving has also allowed SVCF to rethink how it interacts with its donors and how it facilitates charitable giving. The foundation seeks to create a network of givers by routinely organizing briefings, talks, educational sessions and social events for the people behind its DAFs. The goal is to encourage engaged donors who can be pulled together quickly to consider urgent or unusual requests. For instance, SVCF made more than $1 million in grants from DAFs to an asteroid defense foundation started by some astronauts. Closer to home, Carson said some donors are considering directing grants from their DAFs to create a network of public showers around the Bay Area for people living out of cars and mobile homes. In each of these cases, SVCF acted as a matchmaker between organizations with ideas and individual donors looking to make impactful charitable investments. SVCF makes it easier for both organizations and donors to find each other than if each had to try to locate the other on their own. “If all these people weren’t under a single umbrella,” says Carson, “I can’t imagine how we would have funded them.”

As the foundation’s reach has grown, its use of DAFs has come under scrutiny. Salesforce CEO Marc Benioff, who has been a vocal advocate for charitable giving, publicly criticized the Zuckerberg partnership for its lack of transparency. DAFs are not required to file the IRS Form 990 that most charitable organizations and nonprofits might file and make public. Since then, Zuckerberg’s DAF has announced a $75 million gift to the San Francisco General Hospital to fund a new trauma center. But that has not silenced broader criticism raised by Benioff and many others about the tax issues. When someone creates a DAF, they can immediately deduct the entire gift from their taxes. Unlike larger private foundations which must pay out 5 percent of their assets each year, the DAFs face no distribution requirements. “What people are bothered by is this idea that someone can put their money in there and leave it there forever,” says Palmer.

Carson penned an op-ed in The Chronicle of Philanthropy last April in response to a proposal by two philanthropy scholars that foundations be required to pay down their endowments and DAFs rather than let money sit unused for years. Carson wrote that such a move would be not only ineffective, but that it would also cripple many foundations, leaving them unable to continue raising money in the future. SVCF has also started lobbying efforts in Washington, D.C., as part of a coalition of community foundations, spending about $100,000 making its case to lawmakers over the past two years, as there has been talk of possible legislation changing the rules for DAFs. A recent SVCF report said the foundation’s DAFs with balances of more than $1 million were on track to pay out an average of 15.8 percent of their assets, more than triple the amount required of private foundations. SVCF also placed a searchable catalogue of its 2015 grants online that includes all of its DAF giving.

Still, the best advocates for DAFs are donors like the Henriksons. According to Jenise, the tax issue was more about convenience than anything else. The family doesn’t have to worry about documenting each dollar it pays out. Instead, she’s free to focus on the charitable parts. Their giving has included a mix of groups they found on their own and others proposed by their adviser. One of their favorite aspects was being asked to join a “giving circle” for the arts organized by the foundation. The circle is a group of DAFs who meet each quarter to consider arts-related grant proposals and listen to pitches directly. The group has allowed her to see the direct impact of the couple’s giving while also building bonds with other local donors. “That was perhaps one of the biggest appeals for us,” she says. “We love the local aspect. We love being able to walk in the door and meet with someone who really understands us. And, really, it’s hard to beat the community foundation in terms of reach and impact.”

Originally published in the November issue of Silicon Valley

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