How investors 10x each dollar, before they even invest
For the past several years I’ve been knee deep involved in Ukraine and as several people on Tildes know, a lot of my earliest days were spent donating, tens of thousands. All in all I’ve donated enough to nearly bankrupt myself when my situation changed.
As I got more involved (and now I’m an active investor in the sector), I want to share something I’ve learned since that I wish someone had told me when I started:
Every dollar you have that you want to put to work can, on average, be 10x’d by the time you put it in.
That means if you want to donate 10k, you may well be able to end up putting 100k to work towards your goal.
You may have seen this take the form of donation matching — some fame seekers sometimes do it (I’ll donate 10 dollars for every dollar you donate), but this isn’t necessarily what I mean.
Speaking on an investment side: on average, 10% “skin in the game” makes it very easy to get the remaining 90% as long as there is a net positive outcome possible. So by positioning your donation as your skin in the game to a larger fundraise, you set yourself up for multiplying your impact by ten.
What’s more: let’s say you don’t want to donate 10k in bulk but you have a good job that allows you to set aside 1k usd per month. You want to donate half of that (500 usd). This means per year you can donate 6k usd.
Are you able to take a two year engagement? Congratulations, that means you are donating 12k and can now raise for 120k with 10% skin in the game (as long as the money isn’t needed faster than at the rate it can be committed).
I had this discussion with an acquaintance who has been in finance for a long time and got a very good job. She was trying to figure out how to “invest” 40k per year, that would otherwise be lost to taxes. On a 7 year engagement she has now setup a 10M climate fund (around 2% SITG which is standard for funds).
I was floored she didn’t know this. I figured the reason I didn’t was because I didn’t study economics, but it seems so fundamental that I want more people to be aware that this is a thing.
I'm not following. Where is the other 90% coming from? Could you give a specific example?
You fundraise them. Having the 10% skin in the game makes doing so significantly easier, as @chocobean said.
There's no free money, but this gets very close to it. When you're operating at this level, money is a resource and having /something/ means you can grow it into more, with not much effort.
Think of it the other way. Let's say you have an idea for a project that requires $100k. Where is that money coming from? If some of it is not coming from you, then you have a problem.
Okay, I understand that you’re saying that fundraising for charity is easy and everyone interested in charitable causes should do it. But could you talk more about how you go about fundraising?
Sure, the specifics are going to be different for other people, but if you’re not going to talk about your situation in a little more detail, this is a rather cryptic hint.
Or if you don’t want to talk about your own situation, maybe you could find an article online about someone else’s experience that’s spiritually similar?
The reason I didn't reply to you yet is I'm not sure what you're asking -- I gave an example elsethread below, is that what you're looking for?
Yes, that's useful. I'll continue there.
I'm a bit confused. You are using the terms "donate" and "invest" interchangeably, but I didn't understand those to mean the same thing. Investors seek a monetary return, correct? Donations by definition are not made with expectation of fiduciary compensation, or am I even more confused than I thought?
Ninja edit: after rereading a bit more, I think you're basically saying "matching fundraisers work." That's nice, but also a bit "draw the rest of the owl" since you didn't go into detail about the actual mechanisms of setting up such a fundraiser - tax structures, 501(c)X etc.
Can you elaborate with tighter specificity?
This advice is valid for both donation-type fundraises as well as investment-type fundraises, which is why I gave both examples. The numbers aren't exactly the same, but they're similar (I'm less familiar with the donation side now).
And yeah, I didn't go in the details of how to do it because that's a whole load of admin etc that is kind of out of scope for a basic "I wish people had told me exactly this three years ago", and I could only really speak about one country which isn't the US :)
In school as a kid I participated in fundraisers where businesses and individuals would do matching donations, and on NPR radio I would hear them talk about matching fundraisers and how it multiplies the power of one's donation, so that part didn't seem very surprising to me at all.
On the other hand, the process of rounding up investors and doing the actual paperwork involved to make it all legitimate seems much less obvious and more interesting to me. It speaks to the diversity of perspectives on Tildes :)
Edit: reworked phrasing
Yeah, I mean, I've seen plenty of "matching fundraisers" but I never properly considered the "why" behind them, and how it goes beyond charity itself. Having stepped back and now understanding the system end-to-end, I really wish I had better understood this aspect of the game.
You're talking about fundraising donations and or investment capital right? Like, let's say I have the idea to open a soup kitchen that needs $100k, and I'm willing to put in $10k, it makes it so other donors / investors be more willing to contribute towards the goal?
That's the gist. Now all you need to do to complete the circle is:
Shortcut: volunteer at an existing entity so you don't need to do any of the corp LLC stuff. Ask to be involved with fundraising and go with their volunteers to shadow meetings with deep pockets they already know. Gain exp and connection for free.
Then float your idea for a complimentary charity and ask for
free labourexpertise to setup your own. Go to the same meetings together and ask for additional donation to yours at the same time.I think this is the most interesting technical aspect of the whole thread, and I would like to see it discussed in more detail.
It's different for every country but the questions are always the same:
Feel free to AMA but "how to do it" is too broad a question because it depends on how much money is invested and for what purpose.
Can you expand on this specific use case a bit? So she invests $40k over 7 years = $280k, and then you approached other donors and pooled enough to end up with $10m? Am I understanding your point?
Secondary, she had a $40k unused tax credit? In my country it works like this. Say I owe $10,000 in taxes this year to the government from income of $60,000. The govt offers a tax credit for donations. I donate $4000, so now I only owe $6,000 taxes.
vs tax deduction, which, let's pretend my govt also offers tax deduction on buying Widgets, and I buy $4000 worth of Widgets. This reduces my total taxable income to $56000, which lowers my taxes owed indirectly.
I guess it's possible many working professionals don't know that they have accumulated unused charitable tax credits that cost them nothing out of pocket at all to give away.
€40k - this was not in the US (which also answers your "tax credit" question; works differently where I live)
And yes. Here's the case: She earns ~€100k EUR / yr. Average tax rate is 55% in BE, so that ends up being a "usable" ~3750 eur/mo. At this range of earning for solopreneurs, a lot of expenses become professional expenses (anything work related such as travels, hardware, a portion of rent and charges dedicated to home office etc), which bypasses taxes. What's left after that is roughly €40k/yr which would normally end up in a savings account, which creates a small tax deduction. However, in Belgium, this is indexed to a maximum of 8.17% of your employee revenue from three years prior -> In her case, this meant a maximum of ~4k / yr. What to do with the remaining 90%?
So, she took the full 36k / year remaining as a commitment and proposed a 7-year fund of €9M, to which she would contribute a total of €180k EUR over the first five years. This fund actively invests in climate projects, and because it's a philanthropic fund, it doesn't operate VC style and doesn't chase massive multiples. With this, she was since able to find two other partners (each bringing similar contributions), then raise €3M from a private bank, €1M from various family offices, and that amount was all doubled by the Belgian sovereign wealth fund, bringing the total to 9M.
The difference in commitment of course is that she's actively participating in the fund and dedicating some time to it every week.
But the difference is clear: Instead of donating some amount every year and losing the rest to taxes, she gets to be very active on a topic she cares a lot about, which helps continue to build her career, she has a MUCH more significant impact, and she gets to see returns on the money as it's actively invested. (Furthermore, she takes some small salary on the active management, which she … donates to the organizations she was going to donate to in the first place).
I think you're failing to understand how this whole thing is structured and what the potential upside & downside is here.
If your friend has 180k invested in a fund where there is 180+180+180+1000+4500 of capital and 3000 of bank loans, and that fund goes up 6% over the next year, then your friend makes 10.8k, minus proportional interest on the the 3000k (lets say 5% APY?) of bank loans, for a net gain of 6.3k.
If the fund goes down 6% over the next year, then your friend loses 10.8k from investment losses, as well as pays proportional interest on the 3000k of bank loans, as well as will eventually need to pay the bank back 5.4k. Or a net loss of 20.6k. Luckily, we're pretending that there's no risk of margin call on this particular loan, but that could make the situation much worse.
That's not even considering the fact that most people don't have a rich friend with a family office, and are not able to convince sovereign wealth funds to invest in their projects.
I’m definitely not failing to understand how it’s structured, since I advised on it, but no this isn’t the structure. For one, the bank invested, it wasn’t a loan. The risk is obviously higher, yes; all investments come with risk profiles. I’ll say I don’t envy the current US pension funds current risk profiles either…
As for who came in: She did have a couple more people with her profile join in but any fundraising was done cold. Including the sovereign wealth fund (this one is the easiest of the lot - it sounds big but it’s actually essentially the state doubling investments in any funded projects).
I also want to stress that this lady makes half the salary most senior devs make in the US.
I'm wondering how someone would go about raising large amounts of money from a private bank or from family offices. I wouldn't know who to call and I wouldn't expect them to listen to a stranger asking for money for a charity.
I suppose it's like selling anything, but I'm not in sales. Do they get these sort of sales calls a lot?
Well it’s simple.
You have out there professional private investors. Those are people working for rich individuals or families, or sometimes working for large corporations that are diversifying/scouting.
Those people have a job: manage money. They are paid with a management fee on that money (a percentage of the money managed).
But they also have a mandate as to how to manage this money. The mandate won’t just say “we will put it in stocks”, otherwise it’s easier for the owner to do this themselves without a management fee. The latter needs to be justified. You with me so far?
So in many cases the mandate is something like “we will invest in companies/funds at stage A in sectors B and C, tickets from x-y$, up to z% of the raise”
Ok- so, those same people now have quite a bit of work to do. They get bonuses if the investment is successful and so they want to scout the targets for those investments, talk to them, derisk them, understand them etc …
If you’re reaching out such people cold, then you’re just doing their job for them. Everybody wins.
The difficulty:
Pitching a fund is no different from pitching a startup; you just have a different set of investors to talk to. But you also wouldn’t pitch a startup to a pension fund just because they have money, so it’s just as restricted the other way around.
Presumably for pitching a charity (like that climate fund you were talking about, unless I’m misunderstanding), there are different lists.
I think at that point you’re not just an investor anymore, though? Fundraising is not investing; it’s a job that takes different skills.
You seem a bit surprised at how “very easy” fundraising is if you’re the right person with the right skills. But I think that would be sort of like me saying that getting a job at Google wasn’t that hard? It was just ordinary interviewing, but that’s discounting what I learned about software engineering before that. For many people, it would be impossible.
I think it’s all context. My goal with this post was to demystify the process and explain what I think is an incredibly important lever to understand in finance.
Sometimes when people see entrepreneurs at the head of a 100M fund, they associate this with said entrepreneur having that money and putting it to work. Obviously that’s not what it is. But there’s also a LOT of middle class people who have some amount of savings and don’t see the immense leverage that these savings gives them (even as low as 10k as I said), given different risk profiles and goals.
This is extremely informative. Thank you for taking the time to lay this out explicitly.
Collapsible quote because it's longish
So, she took the full 36k / year remaining as a commitment and proposed a 7-year fund of €9M, to which she would contribute a total of €180k EUR over the first five years. This fund actively invests in climate projects, and because it's a philanthropic fund, it doesn't operate VC style and doesn't chase massive multiples. With this, she was since able to find two other partners (each bringing similar contributions), then raise €3M from a private bank, €1M from various family offices, and that amount was all doubled by the Belgian sovereign wealth fund, bringing the total to 9M.
The difference in commitment of course is that she's actively participating in the fund and dedicating some time to it every week.
But the difference is clear: Instead of donating some amount every year and losing the rest to taxes, she gets to be very active on a topic she cares a lot about, which helps continue to build her career, she has a MUCH more significant impact, and she gets to see returns on the money as it's actively invested. (Furthermore, she takes some small salary on the active management, which she … donates to the organizations she was going to donate to in the first place).
I guess I know basically nothing about using my money for anything besides buying necessities and the occasional present for others/myself and saving for retirement, so I have so many questions.
I've never done this, but this is one of the 100s piled up of things I've wanted to look at. If I were to go for it:
AI tool to summarize relevant policies and law involved, get a checklist of steps. This step must be followed up by human eyes on referenced passages / sections.
Talk to free professionals. My local levels of governments might have reference guides or step by steps. They might also have active funding and know other organizations that exist purely to help people do this, eg:
startup incubator hubs / entrepreneurship development bodies; local chamber of commerce;
Talk to local charities: they've navigated this already and would usually be happy to share know-how esp if you're wanting to start a complimentary charity or if you're learning how to fundraise
Tax professionals. I would only be talking to paid professionals at this last step after exhausting free expertise and doing all the things I can do on my own. Track my hours so I can claim hours spend doing this research into my donating hours into my new charity.
Excellent response, thank you!
I'll also add one more thing to this: There is nothing you have to do yourself. Of course, the more you are able to do yourself, the quicker and more efficiently you can execute. But every bullet point in that list is a job you can hire for.
Life Pro Tip: Don't be poor
I hear you. It can be quite disgusting. If a company sells snake oils, it has time and resources to look into all funding sources and tax benefits so it can generate money doing nothing. The money sits in an account accumulating even more money doing nothing, or is thrown away in the ocean or sprayed into the atmosphere in private jets.
Meanwhile, a lot of people just need a minimal amount, a fraction of a fraction of corporate welfare, to get them from $0 to self sufficiency, being able to re-contribute to society and pay it forward all within the local community.
But, on the positive side, this kind of snowballing is also how humble charities become bigger and have more local impact. For example, if I were a charity collecting donations, when I approach the local grocery to say, hey we already have $100 in donations, and we're going to do a holiday thank you flyer, right now the $100 donors will be featured, but if you want to also donate we'll splash your logo on the flyer front and center. Then I might get $1000. Next I go to a competitor grocer and tell them the same thing, I might get $1500. They might throw in holiday turkey coupons or something.
For some reasons, humans don't want to start, they want to follow someone who's already going somewhere with some momentum. So.... Yeah, unfortunately, don't be poor, because people despise the desperately poor, and there's much more willingness to help only those who are only somewhat poor. The social engineering thing to do when poor is to tell a charity you're on your way to being slightly less poor and just need "stone soup" of help; never let on you're totally poor and completely helpless. Eg, someone asking for loose change at the grocery parking lot should say, hey I'm a quarter short for the dollar coin (needed to unlock carts) instead of begging for $1 for milk and eggs. They're going to get 4 quarters from 4 people much faster. The first person might even give them a full dollar coin for free.
Being poor fucking sucks