In 2015, Barron’s profiled Legacy Venture, a Palo Alto-based investment firm that uses money from donor-advised funds (DAFs) to invest in VC fund managers and then distributes returns from those VC funds to nonprofit organizations.

So to break this down:

• Legacy raises money from foundations and philanthropists – such as Pierre Omidyar and Jeff Skoll that were already earmarked for charitable giving in DAFs
• Legacy then invests in VC funds (such as Andreessen Horowitz, True, and Index, and Accel)
• These VC funds invest in portfolio companies (such as Airbnb, Crowdstrike, Dropbox, Facebook, Kuaishou, Linkedin, Netflix, Peloton, PinDuoDuo, Pinterest, Slack, Stripe, Twitter, Uber, VIPShop, Xiaomi, Zulily)
• The proceeds or returns from these VC funds then get distributed to charitable causes

As of the 2015 article, their latest fund of $250m invested in 20 underlying funds. The minimum commitment was $1m with a fund term of 10 years. The management fee is 0.7% with 0% carried interest (whereas the industry FoF standard is 1%/5%).

Quick stats according to the company website:

• Founded in 1999 – by VC veteran Russell Hall, along with Jim Anderson; both worked at Merrill Pickard Anderson & Eyre – with $40m from Cisco VPs and VCs
• Over 600 investors/LPs – including 4 of the original 40 in the Giving Pledge
• Over $2b in distributions to causes

Opinion: This model of philanthropic giving is very interesting and innovative. There’s a flywheel effect of maximizing impacts across multiple stages and stakeholders. I believe this model can be useful not only to fund the next generation of underrepresented vc managers but also for climate strategies.

Fun fact

• The Barron’s profile used this word: el·ee·mos·y·nar·y: relating to or dependent on charity; charitable.

Questions

• Are there others that have adopted this model?
• If Legacy took carried interest, would it no longer be allowed to raise money from DAFs? Has the fee structure changed since Legacy has started? How does Legacy make money?
• Have they started co-investing alongside their VCs?