When philanthropists give money to research, they don’t always feel like they’re making an impact. Money disappears into a foundation or a fund, and donors are left disconnected from how that money is being used.
“Donors struggle with tangibility,” said Chris Blunt, a long time wealth manager and president of the investment unit at New York Life Insurance Co. “They want to know that their money is actually solving a problem.”
San Diego startup Benefunder Inc. is trying to remove that curtain between philanthropists and the impact their dollars can make. The company has developed an online marketplace for researchers — complete with profiles of scientists and technologists — making it easier for donors to give money directly to the people trying to solve the world’s problems.
The hope, of course, is to funnel more donor money into science and technology research by making the experience more engaging for those with the cash.
‘Humbling Experience’
Benefunder has been hacking away at this problem for the past three years, but identifying the best path to reaching philanthropists has been tricky. More than tricky, actually. Under an older business model, Benefunder nearly sank itself, downsizing from 12 employees at its height down to two employees.
“It’s been a really humbling experience,” said Christian Braemer, CEO and founder of Benefunder.
The problem was that Benefunder was essentially trying to be its own donor-advised fund (DAF), an investment vehicle (and pool of cash) that’s managed by a public charity. Convincing donors to move their money from one DAF to another is not an easy task, and convincing wealth managers and banks to put their client’s money into a new DAF is even less likely.
Enter Blunt, the Wall Street money manager. On a pitch phone call between Blunt and Braemer, Blunt outlined the fatal flaw in Benefunder’s business model.
“There’s already billions and billions of dollars sitting in donor-advised funds,” Blunt said. “Why would you try to compete? Why don’t you offer (Benefunder’s online marketplace) to existing DAFs as a value-add they can give to their clients, instead?”
And Blunt was right. Donor-advised funds are the fastest-growing vehicle in philanthropy today, expanding at more than 20 percent annually with roughly $70 billion in existing assets nationally. Why reinvent the wheel?
Overhauling Business Model
After that phone call, Blunt ended up coming on board Benefunder as a non-executive chairman. Braemer took his advice and overhauled the company’s business model, pitching Benefunder as a tool to existing DAFs to help sell clients on the funds.
“This is more engaging for their clients,” Blunt said. “Donors get the anonymity of a DAF, but through Benefunder they can engage in a more impactful way.”
Browsing Profiles
Donors get to see the fruits of their funds, in other words. Before donating, philanthropists can browse profiles of scientists and technologists on Benefunder’s marketplace. Rather than sending money to Foundation X, which may or may not use the cash for research, donors can give directly to Hugh Herr, for example, a researcher at MIT designing novel bionic limbs for those who’ve lost arms and legs. Philanthropists can read all about Herr on Benefunder’s website. They can also see stunning photos of his work, and even meet him in person and tour his lab, if they choose.
After philanthropists have donated, they can check back in on Herr’s work. Is the research moving along? What milestones have been reached?
To DAFs, it’s a much easier sell than asking philanthropists to deposit cash in a fund (and later a mega foundation), never to be seen or heard from again.
“Philanthropists are looking for a more hands-on way to give to charity,” Blunt said. “Baby boomers and generations before them were used to just writing checks, but younger philanthropists, especially millennials, are used to being hands-on and more engaged. They want options that are more customizable and personal.”
Now a For-Profit Venture
During the overhaul, Benefunder also converted from a nonprofit to a for-profit venture.
“The irony is that in our social impact business, the nonprofit side of our hybrid structure approach was the inhibitor,” Braemer said. “By sidelining our foundation, we’re now integrating directly with the in-house donor advised funds at some of the bigger wealth management firms.”
The changes seem to be working. Benefunder signed its first partnership agreement with a donor-advised fund last month, American Endowment Foundation. With more than $1 billion in assets, it could be a meaningful partnership for Benefunder.
Braemer said the company is in pilots with three major DAFs with $16 billion in asset pools and $4 billion in annual charitable distributions.
“How much of that we’ll capture is still to be determined, but based on our disruptive model that provides significant upside for all stakeholders, we like our chances,” Braemer said.
