In an ever-shifting philanthropic landscape, donors are using more and more non-traditional methods of giving to charities. Donor-advised funds, LLCs, and other giving vehicles are becoming more popular. According to Fidelity Charitable 2019 Giving Report, its donors “made nearly 1.3 million donor-recommended grants [DAFs], totaling more than $5.2 billion.” And that’s only one of many organizations that manages donor-advised funds.
DAFs aren’t the only nontraditional giving vehicle rising in popularity in recent years; limited liability companies, or LLCs, are another. In 2015, Mark Zuckerberg and his wife Priscilla Chan announced the founding of the Chan Zuckerberg Initiative, an LLC, to “give away 99 percent of their shares in Facebook during their lifetimes.” The Emerson Collective, Omidyar Network, and Ballmer Group are other prominent examples of LLCs created by billionaire donors.
The increasing popularity of these alternative forms of giving create new challenges for prospect researchers to identify and evaluate major gift prospects for their nonprofits. DAFs and LLCs reveal limited information which prospect researchers and fundraisers can use to appraise prospects’ wealth and giving priorities. As an ever larger swath of donors opt to give behind these veils of secrecy, it’s becoming harder to identify prospects, weakening fundraising operations that raise billions of dollars.
Searching in the Dark
One of the biggest challenges for researchers (and others in the nonprofit world) is the lack of transparency of DAFs and LLCs. Unlike foundations, LLCs do not have to file 990s that report their contributions to nonprofits as well as the amounts—all valuable information for gift officers and researchers to understand a funder’s giving strategy and track record. While the sponsors of donor-advised funds do publicly report the grants they make, they aren’t required to reveal the identity of specific donors, creating a dead end for prospect researchers.
This lack of transparency complicates the work of evaluating prospects’ possible wealth as well as their philanthropic priorities—vital information for nonprofits looking to develop relationships with prospective donors. With foundations, prospect researchers are able to review financials to see how robust the foundation is as well as its overall giving. Moreover, they are able to review the grants made to see if the foundation’s giving priorities align with their organizations. Similarly, researchers can use giving records found through aggregators, whether it’s iWave, NOZA or even Lexis Nexis to determine the size of individual gifts and their recipients to help clue prospect researchers into the prospect’s possible wealth along with their giving interests.
While the names of prospects associated with DAFs occasionally come up in these aggregators, the gifts tend to be few and far between since the reporting is nonprofit dependent (i.e. how the nonprofit lists their gift on their annual report to be picked up by the software).
Granted, the foundation reporting system is not perfect either, given that 990s are often not available until a year or two (or three) later, making it hard to get information on a foundation’s most recent grantmaking.
LLCs may present different possibilities for researchers in comparison to DAFs. Researchers may be able to ascertain the owner of an LLC by looking at state corporation records and then throwing the name of the LLC into a gift aggregator to find available gifts.
Of course, that’s assuming the donor hasn’t obscured their ownership of the LLC through organizational layers. Brooke Harrington explains in Capital Without Borders how easily people can hide ownership of LLCs and other entities by layering companies on top of each other, thus obscuring the true owner of the company(ies).
While a lack of transparency negatively impacts the ability of nonprofits to properly evaluate and make asks of their donors, it can also do a disservice to the donors themselves. Without accurate information about the interests of donors, gift officers can not only waste their own time, but also that of their prospects by exploring philanthropic issues of no interest to a donor.
Leaving fundraisers to grope around in the dark is at odds with what donors say they want, which is for nonprofits to better understand their interests before approaching them for gifts. For example, in a 2017 study on UK donors and privacy, the Institute of Fundraising found that: “A representative survey of the general UK population found that almost two-thirds (60%) of those who prefer charities to communicate in a tailored way with them…” But such personalized approaches are harder as information on donors becomes more scarce.
Getting Around Dead Ends
So what can prospect researchers do in this environment? There are a few creative ways they can try to uncover available information. First, researchers should be in the habit of reviewing transaction reports at their nonprofits. While most gifts coming through a DAF will be hard credited in the report, the actual donor may be soft credited. There may be some donors who elect to be anonymous in this regard, many donors won’t be anonymous. It may be advisable to tag those individuals moving forward to know that they have DAFs as a giving vehicle.
Second, researchers should still review gift aggregators since some information is available. It’s better than absolutely nothing. Third, researchers should work with gift officers who may hear mention of a DAF or LLC from the prospect in their meetings. While it may not help their quantify their giving capacity, these vehicles are likely wealth indicators.
Finally, researchers should keep in mind that donors often give in multiple ways. Janet Shapiro, Director of Philanthropic Funds at the Jewish Federation of Cleveland, says “Philanthropic people have a number of philanthropic vehicles;” DAFs are just one vehicle in addition to direct giving, foundation giving and corporate giving. That’s something that we have seen as research consultants at Aspire Research Group with donors.
While DAFs and LLCs may complicate the philanthropic landscape, they are likely here to stay unless transformative regulation occurs to change the current environment. Prospect researchers have to get more creative in tracking down these prospects.