Silicon Valley Fortunes Grow, but Frustrating Trends in the Region’s Philanthropy Persist

In 2016, Alexa Cortés Culwell and Heather McLeod Grant, founders of San Mateo-based strategic advisory firm Open Impact, published “The Giving Code,” a report exploring the philanthropy of Silicon Valley’s gilded class.

The pair found that the region’s donors were a generous bunch. Individual giving by itemizing households in Silicon Valley—defined as San Mateo and Santa Clara counties—represented 3.7% of assets, higher than the 2.17% national rate. However, the study’s key finding was that 90% of donated dollars from charitable foundations, corporations and donor-advised funds flowed to organizations based outside of the region.

Magazines like The Atlantic and Forbes picked up on the statistic, which shaped a narrative that the Valley’s tech winners were more concerned with “disrupting” global challenges than addressing poverty in East Palo Alto. Culwell and Grant’s report explored this tension in extensive detail, laying out an emerging “giving code”—a psychographic profile that differentiated the Valley’s impact-oriented givers from their more conventional and locally focused peers.

The authors also looked at the giving that wasn’t taking place. While countless individuals in the Valley were getting very rich, many weren’t ready to become active donors. So they poured their assets into donor-advised funds (DAFs) with the intention of pivoting to substantial giving at some later date.

Five years later, how is Silicon Valley philanthropy evolving? “Wealth is growing in extraordinary terms,” Culwell told me. “We know that philanthropy is also growing, because the tax incentives are really strong and those structures have largely stayed in place.” That being said, Culwell told me that most of the money is still going to organizations outside of the region.

We caught up with Culwell to discuss how the report’s findings have held up over the years, what’s changed, and what hasn’t.

Hitting the “pause” button

A key theme of the report is how many of the region’s tech winners have yet to meaningfully engage in active giving. There’s a term for this phenomenon in the Valley—“the pause”—and it finds individuals pumping the brakes on their charitable ambitions so they can get their financial houses in order and develop an impactful philanthropic strategy.

Culwell and Grant found that more than 52% of wealthy individuals reported that their philanthropy “keeps them up at night,” and cited such worries as “whether they were making an impact, having their money wasted, or donating enough to a cause given the sometimes overwhelming need.” In a sense, this is an impulse that emerged from trends in the sector happening well outside of the region.

“These experiences are in some ways an unintended consequence of the ‘strategic philanthropy’ movement of the past two decades,” the authors wrote. “Feeling an intense sense of responsibility to be good stewards of their philanthropic dollars can paradoxically slow down the process and make givers more risk-averse.”

Foundations grapple with the same concerns. But the key difference is that a millennial in tech who is working 60 hours a week very likely does not have a full-time grantmaking staff at their disposal. So aspiring Silicon Valley givers sock their assets into DAFs, reap an immediate tax deduction, and table their forays into accelerated giving until some unspecified date in the future, since DAFs have no payout requirements.

Silicon Valley donors’ infatuation with DAFs has exploded since the publication of “The Giving Code.” The report noted that the Silicon Valley Community Foundation (SVCF), a significant holder of DAFs, had $7.3 billion in assets under management in 2015. That figure grew to $13.5 billion as of May 2018. In April 2020, approximately $10 billion of the SVCF’s total assets sat in DAFs. That same month, SVCF staff started reaching out to DAF holders and asked them to emulate private foundations by allocating 5% of their assets to pandemic relief.

Culwell told me that “the pause” is still alive and well in Silicon Valley. “I am struck over and over again by how many people move slowly because they are fearful of mistakes and don’t know how to engage in more expansive giving beyond organizations they are most familiar with, such as their college alma maters,” she said.

The shift that wasn’t

One of the biggest changes in the broader philanthropic sector since the 2016 publication of “The Giving Code” has been philosophical in nature. Five years ago, Silicon Valley’s tech winners were hitting pause because strategic philanthropy demanded that they thoughtfully identify organizations, crunch the data, and allocate support in a way that achieved impact at scale. Move too fast, conventional wisdom suggested, and you’ll make serious mistakes.

Then, in 2020, Jack Dorsey and MacKenzie Scott upended conventional wisdom by embarking on their experiments in rapid, no-strings mega-giving.

To be clear, the pair still adhere to key principles of strategic philanthropy. Both rely heavily on data and conduct their decision-making processes in a frustratingly opaque manner. But they also threw out key pages of the strategic philanthropy rulebook. All of Scott’s gifts and most of Dorsey’s are unrestricted. Beneficiaries didn’t need to fill out onerous applications, nor do they need to submit reports. They’ve also given a lot to the kinds of community-based nonprofits that Silicon Valley donors have historically bypassed.

In other words, Dorsey and Scott showed Silicon Valley funders that strategic perfection needn’t be the enemy of the good. “MacKenzie Scott is modeling how to give in bold ways without fear and overthinking,” Culwell told me. “The fact that she is a woman willing to fund many community-focused and activist nonprofits with a great sense of urgency and unrestricted, large grants is inspiring a next generation of donors. It is also shining a light on how slow and outdated so much of institutional philanthropy has become,” Culwell said.

But Culwell told me that Silicon Valley funders have yet to pivot to this new paradigm. For example, they haven’t embraced unrestricted support. Culwell found this to be a bit ironic, since unrestricted capital enables organizations to meet funders’ demands for innovation. No-strings-attached support remains “a rare thing” in the Valley, she said, “and if we’re going to actually solve problems, that needs to be a common thing that donors do.”

Characteristics of the giving code

So why do Silicon Valley donors continue to send most of their donations outside of the region? In their 2016 report, Culwell and Grant posed a hypothesis for what was behind this “emerging giving code,” a pattern that seems to have continued in the years following.

Traditional philanthropy, the authors explain, focuses on “charity,” which involves “meeting immediate community needs.” In contrast, the “emerging giving code” finds Silicon Valley funders zeroing in on “impact, on solving big problems, and on getting at root causes.” Traditional philanthropists are inherently civic-minded and place-based. Their giving flows to civic institutions like libraries, universities and arts organizations. Adherents of the emerging giving code, on the other hand, consider themselves “hackers” who want to “disrupt traditional models and innovate.”

In short, the model does not naturally align with the in-the-trenches community work that can ameliorate—but not completely solve—local problems like hunger and homelessness. Of course, grassroots organizers will argue that work happening at the local level does, in fact, lead to systemic change, but that doesn’t seem to resonate with how these number-crunching donors view philanthropy.

While researching “The Giving Code,” Culwell said she heard a number of Silicon Valley donors make the “return on investment” argument. These donors “believe their philanthropy can achieve more impact in emerging markets, where costs and barriers to entry are low,” Culwell said. “They feel that giving $50,000 won’t move the needle for anyone locally, but it could change many lives in a developing country.”

To be clear, Culwell noted that many local funders stepped up to help the region’s nonprofits navigate a tumultuous 2020 that included a pandemic, calls for racial justice, and a spate of climate-related disasters.

That said, I asked Culwell if the fundamental principles of the emerging giving code still hold. “Unfortunately, I would say they still do,” she said. “I am also seeing explicit barriers, especially among tech founders, around finding the right advisors to bring the expertise, networks, and planning capability to help translate the donor’s own world view into philanthropic action. Until they have that trusted resource, they stall out.”

“Make the case and connect the dots”

While Culwell paints a somewhat pessimistic picture, the Valley’s legion of disgruntled fundraisers shouldn’t write off the region’s funders as a lost cause. “The Giving Code” provides instructive guidance and case studies showing how organizations have modified their approaches to better align with donors’ impact-oriented mindset.

For example, the report looks at how leaders at Menlo Park’s Boys & Girls Club of the Peninsula crafted a new strategic plan “that focuses much less on the group’s programs and much more on the results they intend to deliver—highly cognizant of the fact that this is what Silicon Valley donors want to hear.”

Culwell said those kinds of lessons are as relevant as ever. “Nonprofits need to both make the case and connect the dots for donors,” she said. “They need to educate donors, in simple and clear terms, to help them understand their role in both addressing immediate needs and changing systems, as well as the cost and tangible impact of their efforts. They need to constantly be updating donors on their work and impact, in concrete terms.”

Culwell also encouraged nonprofit leaders “to continue to demonstrate rising demand for their services in light of growing inequality exacerbated by COVID. Taking the time to help donors see these connections will pay off and will require deeper investment in communications and marketing, which nonprofits struggle to prioritize.”

Fundraisers can also find solace in knowing that some of the region’s private and family foundations are doing tremendous work to compensate for these stubborn trends. Culwell specifically cited Silicon Valley’s largest place-based funder, Sobrato Philanthropies, and its “deep work in solving problems” in fields like English learning, economic mobility and nonprofit sustainability.

And, of course, there are exceptions to these trends. While Culwell did not mention the Chan Zuckerberg Initiative specifically, I’d be remiss if I didn’t mention the CZI Community Fund, an annual grantmaking program that provides multi-year, unrestricted grants or project-based grants ranging up to $100,000 to organizations serving Belle Haven, East Palo Alto, North Fair Oaks, and Redwood City. Also check out my chat with Mauricio Palma, the SVCF’s director of community building, about the funder’s Local Journalism Fund, which announced its inaugural winners earlier this year.

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