Why Political Campaigns Are Raising Money Faster Than Tech Startups
It's the early presidential campaign season, and candidates are loudly courting voters in high-profile appearances nationwide. But in quiet, closed-press fundraisers, they're also asking well-heeled elites for the cash to keep campaigning. That cash grab is so fast-paced, it would make even hot Silicon Valley startups jealous.
A report from Hamilton Place Strategies, a D.C.-based nonpartisan think tank, shows just how astounding the pace of campaign fundraising is. The Romney and Obama campaigns in 2012, for example, raised money more quickly than Facebook, Twitter, Snapchat or Uber when those companies started.
After 641 days of fundraising — nearly two years — Obama had raised $738.5 million, and Romney had raised $483.4 million. At that point in its life, Snapchat had only recently hit $163 million, and Twitter had only recently raised its $55 millionth dollar.
It's an astounding statistic, but does it really mean anything? Can you really compare a startup to a political campaign? Yes, said Matt Grossman, a Michigan State University professor of political science, who has studied the business of campaigns.
"Certainly going from a nonexistent organization to an extremely large organization very quickly is an important aspect of large political campaigns," he said. "There are some similarities in the quick rises and falls in subtle signals as well. There are people trying to pick the right horse in both cases, so they can respond to signals here and there."
And when people pick up on those signals — a company whose growth is slipping or a candidate whose poll numbers are inching downward — donors and investors alike can very quickly close their wallets.
"They both have to keep raising money to keep the momentum up," said John Backus, co-founder of NAV.CV, a venture capital firm located in Reston, Va. He also has some experience in the political world, having served as founding chairman of a Virginia technology industry political action committee and advised three Virginia governors on technology.
"A successful company is going to raise money almost every year, every 12 to 15 months. It's got to hit milestones," he said. "It's got to be telegraphing, 'I'm growing. I'm successful.'"
A campaign, of course, has a much stricter time frame — after all, no startup has an Election-Day-style deadline to aim for.
"You win or lose in a political campaign probably within 18 months," Backus said. "In the startup world, you'll win or lose in a matter of years. They generally take six, seven, eight years to build a big, successful company. Having said that, the milestones along the way are very similar."
The need to staff up quickly, get the best people, gather momentum, and hone a simple, sharp message — all of these are basics that any startup and any political campaign aim for. And they're all things that can inspire big investments.
The big difference between PACs and startups, however, is in the motivations of the people paying up. Giving to a startup is all about the return, Backus said — a venture-capital firm is focused on a simple equation: money in, money out.
For campaign donors, the calculus can range from simple to much more complicated. Most donors — the small donors — are giving because they believe in a candidate.
"Campaigns are a passion project," said Matt McDonald, one of the authors of the Hamilton Place paper. "[Donating] is probably better compared to — this isn't a perfect analogy, either — but it's probably more akin to buying art than investing in a startup. People talk about buying art, and they say, 'Don't buy art you don't like.' It's the same for a campaign — don't give to a campaign you don't believe in."
The return for these small donors isn't financial — it's more the sense of being a part of a cause.
"Someone isn't giving [to a campaign] to get anything back," he said. "They want to feel a part of the campaign. [Political scientists] always try to kind of say, 'Well, is there any more direct way we can explain it?' but every time we try to do that we find that most political contributions are made for that reason."
But, of course, campaigns aren't just scrapping for $10 here and there — they're also fighting for the biggest fish. And those donors have less altruistic motives, Backus said.
"In the political world, it's not about the financial return, it's more about power and access," Backus said. "The success — the donor that backs a successful candidate and does so early and does so at scale, has access, has power because of that access."
Indeed, big donations often lead to plum ambassadorship assignments, as NPR's Tamara Keith reported in December. And, as University of Chicago law professor Eric Posner showed in a recent analysis, political appointees to ambassadorship positions also tend to be big donors. They also tend to be in cushier spots (think Western Europe) where less diplomatic experience might be necessary than in, say, a conflict zone.
Venture capitalists may invest to get a return, but they at least can get returns off of lots of companies at once. It's possible for all sorts of companies to thrive at once. A political donor, on the other hand, has to pick the one winning horse.
And that may be the biggest difference between the campaign and the startup — the CEO is saying, "I can get profits." A politician is saying, "I can beat everyone else."