What is a private foundation?

Private foundations are charitable organizations established by individuals, families, or corporations to support specific causes or nonprofit organizations. They are distinct from public foundations, which rely on donations from the general public to fund their grants and activities. With 141,344 private foundations in the U.S., they will undoubtedly come up when researching how to find grants for your nonprofit.

However, private foundations aren't all the same and can have vastly different operating structures and grantmaking behavior. It's helpful to understand the different types of private foundations when deciding where to allocate your time and efforts in seeking grants for your organization.

Two main types of private foundations

There are two main types of private foundations that are defined by how directly a foundation is involved in the charitable activities it supports:

Operating foundations: These are foundations that directly operate their own charitable programs or services. Operating foundations typically focus on a specific cause or mission, and use their own resources (staff, facilities, funds) to address these needs. While private operating foundations are allowed to make grants to other charitable organizations, they primarily focus on running their own programs.

Non-operating foundations: These foundations have a primary goal of making grants, but do not run their own nonprofit programs and services. Some of the largest, most well-known grantmaking organizations are non-operating foundations, including the Gates Foundation, The Ford Foundation, and the Hewlett Foundation, among many others.

Additional characteristics of private foundations

In addition to being either operating or non-operating, private foundations can have additional structural and operating characteristics that further define them. A couple of examples that you'll likely encounter when researching grants for your nonprofit include:

Family foundations: These foundations are created and run by family members, often to promote a specific cause or charitable mission that is important to them. Note that getting grants from family foundations can be challenging, and oftentimes, the key to success is building relationships with people inside the organization.

Corporate foundations: These foundations are established by corporations to support charitable causes, often in the communities where the company does business. The company's profits and contributions from employees and other supporters may fund these foundations. Corporate foundations are often involved in philanthropic initiatives that align with the company's values and mission.

Grantmaking trends for different types of private foundations

The graph below shows a breakdown of grantmaking activity by the different types of private foundations. Note that these categories are not mutually exclusive (i.e., family foundations and corporate foundations are also counted as either operating or non-operating foundations).

Based on the chart above, you can see that private non-operating foundations far outnumber operating foundations in both the number of organizations and the number of grants made. It's also interesting to see that while there are a lot more family foundations than corporate foundations, their average grants size is significantly lower and they give out fewer grants-per-organization overall.

Check out what types of nonprofits foundations support to see grantmaking trends for the entire foundation sector, including a breakdown of what types of nonprofits receive the most grants.

Donor advised funds: private foundations or not?

There is sometimes confusion over whether or not a donor advised fund, or DAF, is a private foundation — especially when the word "foundation" is in the name. While any 501(c)(3) organization (including private foundations) can operate a DAF, they are not a separate legal entity, so they are not private foundations themselves.

Donor advised funds are charitable investment accounts held by a sponsoring organization (often a community foundation), through which tax-deductible donations can be made. These accounts are composed of contributions made by individual donors along with gifts from private foundations. While donors can request distributions of funds to specific nonprofit organizations, all donations must be approved by the sponsor.

Donor advised funds have grown popular in recent years and are an attractive option for high-wealth individuals looking to support their favorite charitable causes. In 2021, grantmaking through DAFs increased by $10 billion over the previous year, continuing a ten-year trend of more donors choosing DAFs to carry out their philanthropic goals. In addition to upfront tax benefits and flexibility around when donations are made, DAFs allow donors to maintain privacy with their contributions.

Summary

Private foundations play an important role in the nonprofit sector, providing much-needed support to charitable causes and organizations. Understanding the different types of private foundations and their specific purposes can help you make informed decisions about your organization's grants strategy.

Regardless of your nonprofit type, private non-operating foundations are a good place to start if you're looking for grants to fund your organization's programs and operations. Most importantly, make sure that you understand a foundation's mission, goals, and funding priorities before reaching out, build relationships whenever possible, and be transparent about your organization's goals and impact.