Turmoil in banking and technology:
Optimism for charitable giving?
The wild ride continues! It has been three years since the COVID-19 pandemic first swept the globe and wreaked havoc on the economy. On its heels was inflation, rising interest rates and a volatile stock market. This collection of challenges is still on the forefront of many of our minds as 2023 begins. In addition to all of this, advisors and clients are dealing with concerns about the health of the banking system in the wake of Silicon Valley Bank’s collapse.
Considering the current landscape in the banking industry, your philanthropic clients may seek your advice on how these recent developments could impact their approach to charitable giving this year. With this in mind, we are sharing three factors to consider as you counsel individuals and families who invest in philanthropy.
The outlook is chilly for tech startups and the venture capital firms who fund them.
“It feels like winter is here, and it's going to be a long, cold winter for many companies,” says Maëlle Gavet, CEO of Techstars, one of the world's largest pre-seed investors. When tech was hot and it appeared startups could do no wrong, you might have noticed an uptick in conversations between entrepreneurs and venture capital clients about planning for pre-IPO gifts of closely-held stock in a tech company. Some were even discussing investing in tech companies using philanthropic assets. With a now stressed banking system, conversations have shifted and opportunities like these may be rare. Despite the icy circumstances, there could be a silver lining. As both the failure of Silicon Valley Bank and the overall tech sector take a toll, what may emerge is a more sustainable and streamlined asset class. This could lead to more stable future opportunities for your clients to make gifts of highly-appreciated, closely-held shares.
Nonprofit organizations should closely examine their reserve funds.
Nonprofits’ bank accounts are subject to the same FDIC rules and regulations as for-profit companies, with a few additional points that allow nonprofits to diversify. Many of your clients who serve on the board of directors for their favorite nonprofits in and around Kalamazoo are aware of this and may be working with fellow directors and nonprofit executives to ensure the organization’s money is safe. This is an excellent time for any nonprofit to review its reserve funds and consider establishing a fund at the Kalamazoo Community Foundation. This may present a wise alternative to maximizing a nonprofit’s financial position. KZCF provides several fund options to ensure that community needs are met long term. Establishing a fund through KZCF can be a cost-effective option for a nonprofit to access investment options that might not otherwise be available. Furthermore, KZCF is committed to helping organizations exercise outstanding stewardship of their funds, including honoring donor intent.
Focus on the positive effects of technology on philanthropy.
Softening of the tech sector may negatively impact tech and bank stocks, at least in the short term. This outcome could diminish enthusiasm from your clients to transfer those assets to their Donor Advised Funds or any other funds through KZCF. That said, there is plenty of evidence to suggest that technology itself is increasing the opportunity and efficiency of charitable giving overall. Even in the midst of an industry downturn, tech companies have provided lucrative results for many, and some of these individuals are beginning to share their stories and experiences in philanthropy.
Please contact our Donor Relations team anytime to discuss your clients’ options for meeting their charitable giving goals!