How Crowdfunding Is Rewriting the Campaign Finance Playbook

Politics Transformed: The High Tech Battle for Your Vote is an in-depth look at how digital media is affecting elections. Mashable explores the trends changing politics in 2012 and beyond in these special reports.

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When South Carolina Rep. Joe Wilson (R) spontaneously yelled ?You Lie!? during President Obama?s health care speech in 2009, he didn?t just make headlines ? he also made a ton of money.

In just two weeks after the outburst, the Wilson campaign raised $2.5 million through the fundraising website Piryx, which has since morphed into an even bigger platform called Rally.

Crowdfunding technology isn?t new ? people have donated to causes for years. ActBlue has raised more than $292 million for liberal causes since 2004. The Wilson camp naturally saw a spike because controversy often leads to vocal backers (and a hacking scandal to boot).

But perhaps this type of platform could go one step further and change something that?s fundamentally broken in America: campaign finance.

Donors = Voters

The candidate with the most money has a good chance of winning an election, and that?s especially true on a local level. Getting the message to you, the voter, eats up about 80% of a campaign?s budget, according to Wesley Donehue, a political fundraiser who ran Rep. Wilson?s online campaign.

?Money has changed politics [...] 95% of candidates win because they raise the most money.?

But the biggest issue for local elections is low voter turnout. In many cities, officials are often elected with single-digit turnout ? 5% of registered voters decided a recent Dallas mayoral election, 6% in Charlotte and 7% in Austin.

So that huge chunk of campaign funding went to just a fraction of the population. Talk about an expensive vote.

?Money has changed politics,? says Rally founder Tom Serres. ?Ninety-five percent of candidates win because they raise the most money,? he says. ?You need to have cash to finance any operation, and a political campaign is no different. You have to spend money to get messages out.?

But what if an online platform like Rally grew to be as big as Facebook? And what if 10,000 voters donated just $3 to a candidate? That would be $30,000 ? a huge number for a local, small-town campaign. But what this number really means is votes. If you donate money to a candidate, even if it is just $3, you are far more likely to go to the polls in November.

?Donors are voters, flat out,? says Donehue. ?Barring an extreme circumstance, they will vote ? even if they have only given you a couple of dollars.?

But these online platforms don?t come without fine print. For starters, barriers to entry are lower on the web. In fact, anyone can create an account for free on Rally and other fundraising sites like IndieGoGo and Fundly. Those lower points of entry mean more noise. In a virtual sea of open space, the Internet can be the most impersonal form of interaction out there.

Today, buying ads on the web is cheaper than purchasing television airtime. But that will change as demand rises. ?The more people go online, the more money you will have spend to get ahead of the clutter,? says Donehue.

Candidates will need something more to truly reach you ? a story that connects your heart to your wallet.

Our Wallets Are Tied to Our Heartstrings

Steve Hansen, a Sacramento City Council candidate, is running a campaign tailor-made for online crowdfunding. The 32-year-old, openly gay Democrat went into the race as an underdog without big industry backing. So he took a page out of Obama?s 2008 digital campaign manual and focused on smaller donations.

?I was impressed by how he reshaped the political process by using small donors to get around big establishments,? Hansen says. ?Obama democratized fundraising.?

In 24 hours, he built a website on WordPress, joined MailChimp and set up a Rally account. So far, he has raised more than $80,000 through Rally donations. Fewer than 100 votes separate Hansen and his opponent in the November run-off.

?A lot of people didn?t expect that because we didn?t have [big] backers,? Hansen says. ?But we were able to raise a large amount of money from small donors. People that gave $250 or less became our bread and butter.?

Hansen?s online fundraising has been widely successful because he has a great ?underdog? story that people are more apt to Like, link and share.

?The toughest part is always getting people to care,? Donehue says. ?It?s hard enough to get them to care about a president. Getting them to care about city council is even harder. So having these tools makes it easy to reach people on their social networks.?

How Much Does Crowdfunding Cost?

Third-party platforms like Rally, ActBlue, Fundly and even IndieGoGo are packaged as all-in-one fundraising tools, neatly wrapped with a bow on top. But no matter how you slice it, these services have to make money. Campaigning is a business, and a very lucrative one at that.

Rally takes 4.5% of each donation. For a $3 gift, that $0.13 scrape seems tiny. But let?s say 10,000 people followed through on a $25 donation. That tiny scrape turns into $11,250. That?s a great business model for the third-party crowdfunding service. And in reality, it?s a small amount to pay for that amount of votes, providing that $25 equals one guaranteed vote.

But because anyone can start a project on Rally, tracking donation dollars can potentially be a nightmare. The program does, however, connect every account to its respective candidate, even if the account manager isn?t affiliated with the campaign itself.

Each contribution is assigned to its donor by name, so the Federal Election Commission recognizes it as an individual donation. Additionally, the account managers who run a Rally campaign are not considered to be ?bundlers.?

One of the biggest risks with a crowdfunding platform is fake campaigns. John Doe could create a project under the assumption that all the money will go to Barack Obama, but in turn, he could pocket those donations for himself.

It?s something Rally has faced before. While the company didn?t want to go on record about the specifics of these incidents, a representative did say that Rally complies with federal money laundering statutes and has a ?know your customer? policy, a process used to confirm user identity. It also has an internal risk team that quickly shutters fake accounts.

But even with its flaws, for Donehue, setting up an online fundraising account essentially levels the playing field ? he?s used the same platform for U.S. senators, governors, even a water commissioner. And using a service that already exists dramatically lowers the overhead cost of running a campaign, especially when it comes to financial transactions, ?which are always the hardest,? he says.

And Hansen agrees. ?There are more fees for processing online donations, but the benefits outweigh the costs,? he says. ?Donations in the physical form of cash and paper check are disappearing.?

Illustration by Bob Al-Greene

More in-depth coverage from Mashable?s special politics report:

Source: http://mashable.com/2012/10/02/crowdfund-political-campaigns/

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