“There’s far more flexibility than people realize.”
Many people in venture have heard of DAFs. Fewer understand what you can actually do with one.
That was the premise behind our latest virtual event, and after an hour with Daniel Blake (CEO of UI Charitable and a former founder who sold his company to Scotts Miracle-Gro) and Dave McClure (co-founder of 500 Global and Managing Partner at Practical VC), it’s clear the gap between what people assume DAFs can do and what they actually can do is pretty significant.
TL;DR: A donor-advised fund isn’t just a charitable giving account. With the right provider, it can hold illiquid private market assets, generate a tax deduction at the time of donation, invest directly into VC funds as an LP, and provide more flexibility than most people realize. The catch is that most DAF providers, including the largest ones, are far more restrictive than the IRS actually requires them to be.
The information provided is for general informational and educational purposes only and does not constitute legal, tax, or investment advice. Individuals should consult their tax advisor or legal counsel regarding their specific circumstances.
Presented by UI Charitable
UI Charitable is a philanthropic advisory firm helping private market investors optimize taxes and amplify charitable giving through flexible Donor-Advised Funds (DAFs).
UI Charitable is a philanthropic advisory firm that helps individuals optimize their tax strategy and give more intentionally. Their flagship product, the Donor-Advised Fund (DAF), is built for flexibility, both in accepting a broad range of asset contributions, including public and private securities such as VC fund interests, and in allowing DAF assets to be invested in alternatives such as VC and PE funds. That flexibility, combined with comprehensive advisory support across a wide range of charitable vehicles, makes UI Charitable a natural fit for investors operating in private markets.
You Can Donate Illiquid Assets (And Get a Tax Deduction for Them)
You do not have to donate cash to a DAF to get the tax benefit. You can donate LP interests, GP interests, carried interest, equity in a startup, or even crypto, and receive a tax deduction based on a third-party fair market value appraisal at the time of donation.
Dave made this emphasized this with his own experience:
“I’ve donated probably about 1 or 2 million in cash to my donor-advised fund, but I’ve donated over $10 million in illiquid assets, mostly carried interest in some of the funds that I used to manage.”
The mechanics work like this: you donate the asset in-kind, avoid capital gains on it, and receive a personal tax deduction for up to 30% of your adjusted gross income. Any remainder can roll over for up to five years. And critically, as Daniel explained, the tax deduction locks in at the time of donation based on that appraisal. Whether the asset goes to zero or 10x afterward does not change what you already deducted.
The Large DAF Restriction (And Why They Might Not Apply)
For many donors, Fidelity Charitable (the largest public charity in the United States) serves as their primary exposure to donor-advised funds. But like most national DAF sponsors, it operates within a restrictive framework.
Daniel put it plainly: because of the scale, they have a very streamlined process, which means they limit what donors can do with their funds. The result is that most people assume those restrictions apply universally.
“People just think because I’ve heard I can’t do this at Fidelity Charitable, therefore donor-advised funds must not be allowed to do this thing, and that’s just not accurate.”
The IRS, it turns out, affords DAF donors quite broad advisory rights. Whether you can exercise those rights depends entirely on which DAF provider you work with.
The Idle Capital Problem (And How DAFs Compare to Other Vehicles)
Private foundations deploy about 5% of their assets to charitable causes each year. Donor-advised funds are higher, at about 20%. But that still means 80 to 95% of all philanthropic capital is just sitting there, typically invested in a basic index fund.
Daniel’s view is that most people aren’t being intentional about that other 80%.
“80 to 95% of all philanthropic assets in private foundations or donor-advised funds are just sitting there. And realistically, they’re invested in public securities. And that’s because it’s easy. It’s not because that is a good solution for them.”
A flexible DAF provider can allow those assets to be invested in VC funds while they wait to be granted out. Which brings us to the part of the conversation that got the most attention.
On how DAFs stack up against other charitable vehicles: if your goal is access to ongoing personal liquidity, a charitable remainder trust (CRT) is worth exploring. If your goal is maximizing the tax deduction, a DAF is the better tool. And on the foundation comparison, Daniel shared what he called the dirty secret of large foundations:
“The dirty secret of all these big foundations is they all also have a donor-advised fund. And what most of them do is they take that 5% required minimum distribution and give it to their donor-advised fund each year.”
There is no minimum or maximum size threshold where a DAF stops making sense. Daniel mentioned accounts as small as a few thousand dollars and flagged the trend of large foundations actively closing and transferring assets into DAFs for the administrative simplicity.
DAFs Can Be LPs in VC Funds (And You Retain More Control Than You Think)
Yes, a donor-advised fund can invest directly into a venture fund as an LP. Daniel walked through the compliance framework: the key rule is that the DAF cannot own more than 20% of any single investment. Beyond that, the main thing the provider needs to verify is that the investment doesn’t create improper personal benefit for the donor.
For a GP thinking about how to raise capital, the mechanics are simpler than they sound. If multiple individual DAF accounts want to invest in your fund, they can all do so through a single entity, the DAF provider, which appears as one LP on your cap table. The DAF provider handles the back-office accounting.
That said, if you are the GP of the fund in question and have a legal GP commitment you need to fill, you cannot use your DAF capital to fill that commitment. That would be counted as personal benefit. But investing above and beyond your GP commitment, as an LP who happens to believe in the fund, is permitted.
Once you donate assets to a DAF, you give up legal ownership. What you retain are advisory rights. At a provider like UI Charitable, those advisory rights are broad enough that you can advise on when to hold, when to sell, at what price, and in what proportion. You can even dollar-cost-average donations of a single asset over multiple years if you think it still has room to grow.
“Many things that you can do with your normal for-profit pocket, you can do those same things with the donor-advised fund.”
Dave noted that he has pushed Daniel on creative structures regularly over the years, and that the answer is usually yes, with some work to make sure it’s compliant.
A Note on the Secondary Market (From Dave)
Dave also shared some context on where he sees secondary markets heading, which connects to the DAF conversation in a specific way. With somewhere between 1,000 and 2,000 unicorns in the market, Dave estimates a meaningful portion of them are carrying valuations that no longer reflect current reality.
“I’m gonna just guess off the top of my head that half of them are not unicorns anymore.”
For assets in that category, donating to a DAF while the on-paper valuation is still intact can be a way to hedge.
He also flagged the broader opportunity: as SpaceX, OpenAI, and Anthropic move from private to public, he expects significant capital to eventually recycle back into venture, and secondary market volume to shift as those names become accessible in public markets.
The full conversation covered additional ground, including DAF fee structures, how to transfer between providers, and specific questions from emerging managers on sourcing LP capital from DAF holders.
