Reflections Blog: Innovative Ways to Activate Your Capital
Authored by the SustainVC Team
The end of the year and the holiday season offer a natural opportunity to reflect on what has been accomplished and extend gratitude outward in the form of annual giving or charitable donations. In addition to non-profit contributions, individuals and institutions can also elect to invest their capital into for-profit impact-related businesses and funds to both drive scale and returns.
Spurred by some conversations with our investment partners, we want to highlight some creative ways to activate your capital for positive impact while maintaining a focus on long-term outcomes.
The Donor Advised Fund (DAF)
DAFs are giving accounts established at charitable organizations that allow donors to receive immediate tax deductions while making grants over time. DAFs were popularized by private foundations because they are lower cost and provide fewer barriers to entry for charitable giving. However, they come with a challenge: there is no annual distribution requirement, and many administrators offer limited flexibility for donors looking to take a more active role in their grant-making. As of 2023, there was more than $53.8B residing in DAF accounts, with a payout rate of 24%. Said differently, most of this capital sits unused in these accounts for years despite being earmarked for impact.
Working with an organization like CapShift for example, makes investing the principal balance of your DAF straightforward. They offer due diligence, impact investing solutions, and recoverable grant opportunities for the individual, family, or foundation seeking to invest in impactful businesses or funds. This is a great option for investors looking to diversify their impact investment portfolio or have unused charitable capital. One more bonus - there wouldn’t be an additional K-1 as the DAF administrator handles this reporting!
For those desiring to mobilize and grow capital for impact, DAFs can be a powerful investment vehicle. Investment proceeds can be recycled into additional for-profit impact investments or ultimately directed to a nonprofit of the donor’s choice. By investing the principal, donors can support mission-driven businesses today and increase the total amount they are able to give over time.
The Self-Directed Individual Retirement Account (IRA)
A self-directed IRA operates under the same tax rules as other IRAs but offers significantly more flexibility in the types of investments it can hold. Account holders may use these accounts to invest in alternative assets such as real estate, private equity, and venture capital funds.
While self-directed IRAs are still subject to contribution and withdrawal limits, most of the regulatory complexity centers on prohibited transactions (i.e. self-dealing or transactions with certain related parties) rather than restrictions on asset classes. Investors retain full discretion over how capital is allocated, even though a custodian is required to administer the account.
Investors might consider this option for impact investing because these accounts are designed for long time horizons and complementary tax advantages. Regardless of pre-tax or post-tax IRA dollars, utilizing this type of account aligns well with the long-duration investment profile of a venture fund. Additionally, because these accounts are generally illiquid by design, they pair naturally with patient capital strategies that prioritize long-term impact.
Call to Action (and TLDR)
At SustainVC, our team has experience working with investors across a wide range of investment vehicles. The DAF works well for impact investors or donors that want to grow their charitable capital but also make certain that it is mobilized for impact. The Self-Directed IRA is a natural fit for patient investors with a long time horizons that have a significant portion of their net worth tied up in retirement accounts.
If either of these approaches resonates with you, we would be happy to help you explore how to align your investments with your values, whether through SustainVC or by connecting you with our trusted partners across the impact investing ecosystem. Private capital can be a powerful force for both positive impact and meaningful returns, especially when we mobilize it together.
Sources
- https://www.nptrust.org/what-is-a-donor-advised-fund/
- https://ssir.org/articles/entry/the_problem_with_donor_advised_fundsand_a_solution
- https://www.rbcwealthmanagement.com/en-us/insights/donor-advised-funds-how-to-overcome-the-complexity-of-giving-and-put-your-dafs-to-work
- https://missioninvestors.org/resources/using-donor-advised-funds-invest-early-stage-entrepreneurs
- https://communitycentricfundraising.org/2025/04/07/donor-advised-funds-dafs-and-how-the-sector-resists-change/
- https://www.irs.gov/charities-non-profits/charitable-organizations/donor-advised-funds
- https://en.wikipedia.org/wiki/Self-directed_IRA
- https://www.businessinsider.com/personal-finance/investing/what-is-ira
- https://www.nerdwallet.com/retirement/learn/self-directed-ira
- https://crowdwise.org/taxes/three-ways-the-us-gives-tax-relief-for-investing-in-startups/#:~:text=The%20first%20startup%20investment%20tax,acquired%20prior%20to%20this%20date)
