Fundraising Update

Welcome to Fundraising Update. This week, a look at a new nonprofit that aims to bring together the worlds of cryptocurrency and donor-advised funds. Plus, new DAF legislation, studies on the financial health of nonprofits, donors’ comfort level with in-person events, and different generations’ definitions of charity impact.

I’m Eden Stiffman, senior editor at the Chronicle of Philanthropy. If you have ideas, comments, or questions about this newsletter, please write me at eden.stiffman@philanthropy.com. Thanks to sponsor DonorPerfect for supporting Fundraising Update.

A New Way to Get Crypto Gifts

Mega-donations of cryptocurrencies continue to grab headlines — but many nonprofits are still uneasy or unsure about how to get in on the action.

Now a new nonprofit giving platform is making it as easy as accepting a gift from a donor-advised fund. Endaoment sponsors DAFs built on the Ethereum blockchain, the world’s most actively used platform supporting smart contracts, a program that automatically completes a transaction when pre-agreed criteria are met. The idea is to create an easy way for people to give cryptocurrency without the hassle of selling it first and for U.S. nonprofits to accept it as cash.

The idea is the brainchild of 30-year-old Robbie Heeger. In 2016, he and his brother created a donor-advised fund at the San Francisco Jewish Community Federation and Endowment Fund. At the time, Heeger was working at Apple and got in the habit of making regular contributions of the company’s stock to the DAF.

Several years before, he had begun dabbling in digital currencies, making investments here and there. When Heeger left Apple at the end of 2018, he no longer had the same supply line of company stock to fund the DAF. More of his assets were in cryptocurrencies.

When he approached the federation in mid-2019 about making a gift of some lesser-known crypto coins, “they kind of looked at me with this 100-yard stare,” he says. “We really want this gift but don’t know how to handle it,” he recalls the federation’s staff telling him.

At that point, something clicked for Heeger, who had been learning to code. He got back to his federation contacts with a proposal: “What if I approached you with software that allows you to take the gift?” They said, “If you can bring us the software, we can help you to make it happen.”

Joy Sisisky, the federation’s chief philanthropy officer, wanted to make it happen, she says. “Instead of saying, ‘No, we can’t,’ we said, ‘Great. Let’s figure this out together.’”

The software Heeger built allowed him to make a gift of cryptocurrency and convert it to cash that the federation could easily accept. Even charities that were once wary of accepting digital currencies say that finding a way to accept them has the added perk of helping them appeal to young male donors who tend to use cryptocurrency but are elusive as supporters for many nonprofits.

Heeger also saw how blockchain technology could disrupt some commonly cited complaints about DAFs. For instance, fund sponsors benefit financially the longer a donor keeps money in a DAF rather than sending it to charity. And there’s a lack of transparency about how much wealth flows into and out of the funds. Heeger launched a pilot in February 2020 that worked not just to make it easy for donors and charities to transfer cryptocurrencies but also to provide more of a window into the money flowing into and out of DAFs.

Since then, donors have contributed more than $2.5 million to Endaoment funds and have distributed more than $1.8 million to nonprofits. Heeger hopes this is just the beginning.

“We want to demystify the process of accepting a crypto gift,” he says. “We want to see money flowing from crypto into the hands of organizations that need it.”

Endaoment joins an array of third-party entities springing up to help nonprofits accept these gifts. Groups like the Giving Block, Every.org, Engiven, and BBB Wise Giving Alliance’s GiveSafely platform all facilitate the transfer of cryptocurrencies to charity coffers. Those firms, as well as many major DAF-sponsoring organizations, tend to accept only a handful of the most popular cryptocurrencies, like Bitcoin, while Endaoment accepts around 150 types of coins.

Endaoment has also launched pooled “community funds” that enable owners of specific digital tokens to support nonprofits collectively and vote on who receives those funds. (The name Endaoment is a play on decentralized autonomous organization, or DAO, a crypto-based organizational model that aims to democratize decision making among its members.)

Read more about how Endaoment works — and how nonprofit fundraisers are responding to gifts of digital currencies and talking about this form of giving with donors.

Hear From You

Have your donors expressed interest in gifts of digital currencies? How are you talking about crypto as a way to give? Does anything give you pause about accepting these contributions? Drop me a line. I’d love to hear from you.

Need to Know

“We were a bit surprised that they fared better than expected.”

— Ellie Buteau, vice president for research at the Center for Effective Philanthropy

Nonprofits across the nation suffered deep economic hardships and many cut services during the pandemic, but strong government support and stepped-up giving by foundations and individuals averted the widespread charity failures that many experts had feared.

That’s according to a new study of 163 nonprofits from the Center for Effective Philanthropy as well as from conversations my colleague Dan Parks had with giving experts.

Fifty-eight percent of nonprofits reduced their services last year, according to the report, and 49 percent cut operational costs. Thirty-eight percent drew down their reserves, and 31 percent laid off or furloughed employees.

Jakada Imani, CEO of the Management Center, a consultant for social-justice advocacy organizations, said the impact of the pandemic on nonprofits was lessened by the fact that the stock market held up well, unlike during the Great Recession that began in 2007, so giving didn’t suffer.

“It’s been much more choppy sailing as opposed to devastating storms that we couldn’t weather,” Imani told Dan.

Plus:

• Charities are increasingly soliciting contributions based on their ability “to make a difference” in a quantifiable way, but the fluid nature of “impact” and the wide variety of metrics a charity can use make it a challenging goal. My colleague Michael Theis reports on a new survey from the Better Business Bureau’s Wise Giving Alliance, which finds big differences in how different generations define impact. Among members of Generation Z, a 40 percent plurality defined “charity impact” as “organizations reaching defined goals.” Among their older, millennial peers, the most common definition was “how efficient the organization was in its spending,” with 27 percent responding so. Among Generation X, 23 percent defined it as reaching defined goals. And among “matures” (people born before 1945) and baby boomers, “quality of programs” was the most popular definition, selected by 26 percent and 24 percent, respectively. Forty-seven percent of those polled said they either did not know or were unclear on what the phrase “charity impact” means.
  
• A majority of donors who previously participated in fundraising events, giving days, or peer-to-peer campaigns say they will again feel comfortable attending in-person fundraising events in the next several months, so long as certain conditions are present, Michael reports. In a new survey, 71 percent of these “social donors” said they would feel comfortable attending a fundraising event in person before the end of fall 2021, and 57 percent said they would feel comfortable doing so before the end of the summer. But a notable number — 21 percent — said they would not feel comfortable attending in-person events until at least winter of this year, and 16 percent said they would not take part in an in-person event until at least 2022. These results come from a survey commissioned by fundraising software provider OneCause. In April, the polling firm Edge Research surveyed a representative sample of 1,026 self-described social donors who had given to or participated in a fundraising event or social fundraising campaign in the past year.

DAF Legislation Heads to Congress

Two key U.S. senators introduced legislation today designed to spur faster payouts from donor-advised funds and foundations, giving new momentum to an effort that has deeply divided philanthropy, my colleague Dan reports.

Sen. Chuck Grassley, Republican of Iowa, a former chairman of the Finance Committee who still sits on that panel, and Sen. Angus King, an independent from Maine who caucuses with the Democrats, have teamed up on legislation that closely tracks a plan put forward by the Initiative to Accelerate Charitable Giving, a group of prominent wealthy donors, foundations, and scholars of charitable giving.

“The federal government offers tax incentives to Americans who give back, but in order to ensure that these funds are doing the most possible good, we must reform the rules that govern some charitable donations,” King said in a news release.

Wealthy donors can enjoy immediate tax advantages for establishing family foundations or making big deposits in donor-advised-fund accounts. Foundations are required by federal law to distribute at least 5 percent of assets annually, but donor-advised funds have no such requirements.

The King-Grassley legislation would allow donors to get an upfront tax deduction for donor-advised-fund deposits if they distribute the money within 15 years. Alternatively, donors could choose to delay the income-tax deductions and have 50 years to distribute their charitable funds. Donors could still receive immediate capital-gains and estate and gift tax savings.

The legislation also contains provisions intended to prevent donors of complex assets like real estate from claiming tax benefits that far exceed the actual value of the gifts.

For foundations, the legislation would waive the annual excise tax of 1.39 percent of their net investment income in any year their payout tops 7 percent of assets. Private foundations created after the legislation takes effect could be exempt from the tax if they agree to give away all their assets within 25 years of their founding.

The legislation would bar foundations from meeting their payout obligations by making distributions to donor-advised funds. A recent Chronicle analysis found that $740 million in such transfers were made in 2018, the most recent year for which data was available. Such transfers can help foundations meet their annual payout requirements, but critics say the transfers accomplish nothing for working charities.

In addition, the legislation would not allow foundations to meet their payout obligations by paying salaries or travel expenses of foundation family members, as they can now.

Read more about the legislation.

Debating DAF Data

For more than a year, Ray Madoff, a Boston College law professor, has worked with the philanthropist John Arnold to press Congress to take actions like the regulations proposed today.

A study produced by Madoff and James Andreoni, a professor of economics at the University of California at San Diego, showed that charities that provide direct programs and services had lost $300 billion over five years because of giving patterns at donor-advised funds and foundations. That has touched off a feud between scholars in the debate about whether DAFs need greater regulation, Michael reports.

Two scholars writing on behalf of Philanthropy Roundtable, an organization critical of the Madoff-Arnold plan, said the methodology that developed the $300 billion estimate was sloppy and led to misleading conclusions. They say that the research far overstates the amount of money lost to working charities.

The Philanthropy Roundtable and other conservative groups oppose new distribution requirements, saying they would discourage charitable giving.

One of the challenges in this debate is the lack of reliable data about giving, which stymies academic efforts to figure out the impact of the growth of commercial advised funds on charities that provide direct services, advocacy, and more.

What We’re Reading

• The furor over ProPublica’s exposé of billionaires’ tax filings once again trains a spotlight on the use of charitable donations to avoid putting money in the Treasury’s coffers. Warren Buffett, for instance, reported taxable income of only a small fraction of his estimated $110 billion fortune. Like many others, much of his wealth is in stock, which will not trigger a tax bill until it is sold. But he can also avoid income and estate taxes by socking it away in a charitable foundation, which he plans to do. “I believe the money will be of more use to society if disbursed philanthropically than if it is used to slightly reduce an ever-increasing U.S. debt,” he said. (ProPublica)
• Four private citizens will board a SpaceX spacecraft in September to embark on the Inspiration4 mission, which will take them around Earth. The mission was booked by tech billionaire Jared Isaacman as both a spaceflight effort and a way to raise money for St. Jude Children’s Research Hospital. The charity is asking supporters to form their own “crew” to help raise money from friends and family for the organization. (Space)
• Revenues of public television and radio stations declined by 5 percent in fiscal year 2020, according to a Corporation for Public Broadcasting analysis. The steepest losses were in underwriting, foundation funding, and investment income. Individual giving revenue was the only income source that grew — a 5 percent increase over 2019. (Current)