How Political Crowdfunding Killed Traditional Campaign Financing

By Germano Silveira –

The Real Birth Of Crowdfunding

In the summer of 1885, crowdfunding diverted a crisis that threatened the completion of the Statue of Liberty.

Construction of the statue’s pedestal stalled due to a lack of financing. Fundraising efforts for the project fell short of the necessary amount by more than a third. New York Governor Grover Cleveland refused to appropriate city funds toward the project, and Congress could not agree on a funding package.

Recognizing the social and symbolic significance of the statue, publisher Joseph Pulitzer came to the rescue by launching a 5 month fundraising campaign in his newspaper The World.

The World solicited contributions by publishing articles that appealed to the emotions of New Yorkers. Donations of all sizes poured in, ranging anywhere from $0.15 to $250. More than 160,000 people across America donated including businessmen, waiters, children, and politicians. The paper chronicled each donation, published letters from contributors on the front page, and kept a running tally of funds raised.

The campaign raised over $100,000 (roughly $2 million today) allowing the city to complete construction of the pedestal. Joseph Pulitzer and The World simultaneously saved the Statue of Liberty and gave birth to crowdfunding in American politics.

 

The Rise Of Crowdfunding

More than 100 years after the construction of the Statue Of Liberty, micro-financing is becoming popular in the political realm. Politicians and interest groups are catching on to the amazing potential crowdfunding offers and are using it to further their causes.

Traditionally, campaigns are financed by a candidate’s party and small groups of wealthy donors. But in the 2008 Presidential Election, Barack Obama made political history by becoming the first African-American president while simultaneously revolutionizing campaign financing.

Using their website to collect funds, the Obama campaign raised $750 million from small donors.  $600 million came from more than 3 million small donors whose average donation amounted to roughly $86. Four years later, Obama used the same strategy to defeat Mitt Romney when he raised $631 million in individual donations, $214 million of which came from small donors (roughly 3 times the amount Mitt Romney raised from small donors).

Obama’s success inspired other politicians to replicate his strategy, including his political opponents. South Carolina Congressman Joe Wilson made headlines when he shouted “You lie!” during President Obama’s 2009 healthcare speech. In the following two weeks, Wilson raised $2.5 million using the crowdfunding site Piryx (now called Rally).

But perhaps the most exciting impact of crowdfunding is happening on the local level.

While Obama was running for reelection in 2012, Steve Hansen was running for City Council in Sacramento. Hansen, a 32 year old openly gay Democrat, was considered an underdog in the race and had no big industry backing. In just one day, Hansen built a website on WordPress, joined MailChimp, and set up an account on Rally. Hansen’s campaign raised more than $80,000 from donors who contributed $250 or less.

Hansen admits to being influenced by Obama’s campaign strategy stating, “I was impressed by how he reshaped the political process by using small donors to get around big establishments.”

Bryan Parker of Oakland, CA took campaign crowdfunding a step further. He used the crowdfunding site Crowdtilt to gauge support for a 2014 mayoral run before deciding to enter the race. Parker pledged that if he could raise $20,000 on Crowdtilt in 10 days then he would run for mayor. He raised $23,000 from 79 small donors on day one. After 10 days, he raised more than $50,000 from 167 small donors.

 

Why Crowdfunding Works

Even after Obama’s repeated success, many still doubt the power of a campaign crowdfunding strategy.

The success of crowdfunding goes beyond the ability to raise large amounts of money in a short amount of time. The real power lays in the way it combines fundraising and campaigning into a single activity.

 

Building A Community Around A Story

The Obama campaign united their donors around the message of Hope and Change in 2008. The American economy crashed, and the fresh-faced African American Senator from Illinois represented a new kind of politician and a new brand of politics. In 2012, the campaign continued that story with the message “Moving Forward.”

Bryan Parker developed a similar message for his mayoral campaign, adopting the hashtag #OaklandForward. Steve Hansen built a community around his story as the underdog. Rep Joe Wilson used the power of controversy to unite Obama-haters and compel them to donate.

The story a campaign tells is the hook that compels people to donate. Posters, billboards, and campaign literature are limited in their ability to communicate that story. But crowdfunding allows campaigns to combine all of those mediums into one platform and update their supporters regularly. This feature turns a campaign into a constantly evolving story that people can take part in.

 

Large Groups Of Small Donors

Financing a campaign with a large group of small donors presents many advantages.

A donation is akin to an investment in the success of a campaign. People who donate, small or large, will go to greater lengths to see a return on their investment than those who don’t. As a result, they are more likely to show up to the polls on election day.

But small donors are also more likely than large donors to do crucial volunteer work, like making phone calls and handing out literature. More small donors means more likely volunteers and more people spreading the message of a campaign.

Small donors also provide a renewable resource of donations. By September 2012, 51% of Mitt Romney’s contributors had donated the legal maximum amount of $2,500, compared with just 16% of Obama’s supporters. This allowed the campaign to go back to them for more money multiple times.

 

Convenience

Campaigning is expensive. Delivering messages to voters eats up about 80% of a campaigns budget, which is why money matters in politics. Crowdfunding makes fundraising more convenient than ever before.

The primary reason crowdfunding sites are so convenient is because of the connectivity they provide. People are no longer required to travel to a fundraiser in order to donate to their candidate or cause. Nor must they rely on sending cash and checks in the mail. Candidates can link a crowdfunding campaign to their website and social platforms, which puts potential donors just one click away from contribution.

This connectivity also makes it infinitely easier for supporters to spread the message of a campaign. Supporters can share pictures, videos, and updates with their social networks. Candidates can also use these social networks to reach people directly, giving their campaign greater access to elusive, tech-savvy younger voters.

Like any business, crowdfunding sites have to make money. Rally takes 4.5% of each donation, which seems small but can eventually add up to a great deal of money. Still, the reduction in overhead expenses, like renting rooms for fundraisers and the traditional costs of financial transactions, make it well worthwhile. According to Hansen, “There are more fees for processing online donations, but the benefits outweigh the costs.”