The Amazing Money Machine

Photograph by Jonathan Sprague

History has a way of prizing timeless qualities like vision and oratory above temporal things like money. So if Barack Obama becomes our nation’s first black president, civics textbooks will probably never note his fund-raising prowess or the financial challenges he had to overcome simply to compete with the likes of Hillary Clinton. But Obama would not be where he is today if he did not possess a preternatural ability to elicit huge sums. Obama prompts an impulse in people to reach for historical antecedents when describing him—as a speaker, Martin Luther King Jr.; as an inspiration to young voters, Robert F. Kennedy. No one I’m aware of has suggested an apt comparison for Obama, the mighty fund-raiser. But whenever I think about the quarter billion dollars he has raised so far, the image that leaps to mind is Scrooge McDuck diving joyously into his piles of gold.

Also in the June Atlantic:

HisSpace
How would Obama's success in online campaigning translate into governing? By Marc Ambinder

The story of Obama’s success is very much a story about money. It provided his initial credibility. It paid for his impressive campaign operation. It allowed him first to compete with, and then to overwhelm, the most powerful Democratic family in a generation—one that understood the power of money in politics and commanded a network of wealthy donors that has financed the Democratic Party for years.

What’s intriguing to Democrats and worrisome to Republicans is how someone lacking these deep connections to traditional sources of wealth could raise so much money so quickly. How did he do it? The answer is that he built a fund-raising machine quite unlike anything seen before in national politics. Obama’s machine attracts large and small donors alike, those who want to give money and those who want to raise it, veteran activists and first-time contributors, and—especially—anyone who is wired to anything: computer, cell phone, PDA.

Here’s another thing: he is doing it almost effortlessly. That is to say, in an era when the imperative for campaign dollars demands more and more of a politician’s time and lurks behind so many recent scandals (including the auctioning-off of the Lincoln Bedroom), Obama has raised more money than anybody else without plumbing ethical gray areas or even spending much of his own time soliciting donations. During the month of February, for example, his campaign raised a record-setting $55 million—$45 million of it over the Internet—without the candidate himself hosting a single fund-raiser. The money just came rolling in.

Obama’s campaign is admired by insiders of both parties for its functional beauty—not just admired but gawked at, like some futuristic concept car leaking rocket vapor at an auto show. Obama’s campaign has made a similar leap in how it has applied technology to the practices of raising money and organizing, and it is already the clear model for everyone else.

To get a better sense of why it has succeeded, I opted to undergo the full tech immersion while reporting this piece, and soon had Obama ring tones on my phone, new networks of online “friends,” text-message updates from the campaign, and regular e-mails from its manager, all gently encouraging me to give money, volunteer time, bring in new friends, and generally reorient my life in ways that were made to seem hip and fun—and inexorably aimed at the greater glory of Barack Obama. How Obama arrived at this new model for campaigning is a tale of foresight and circumstance, his campaign’s enterprise and his opponent’s shortsightedness, and it has as much to do with Silicon Valley as it does with Washington politics.

Obama is a gifted politician by anyone’s measure, but what distinguishes him from earlier insurgents is his ability to fully harness the excitement that his candidacy has created, in votes and in dollars. Three forces had to come together for this to happen: the effect of campaign-finance laws in broadening the number and types of people who fund the political process; the emergence of Northern California as one of the biggest sources of Democratic money; and the recognition by a few Silicon Valley entrepreneurs and venture capitalists that the technology and business practices they had developed in their day jobs could have a transformative effect on national politics.

A few days after Obama announced his $55 million figure, I went to Silicon Valley to meet some of these people, and to find out how they saw the future coming and got there first.

Mark Gorenberg decided to start fund-raising in earnest during the early days of John Kerry’s presidential campaign, back when Barack Obama was considered merely a comer in Illinois politics. Granted, that was all of five years ago. But it was a different world then, at least in the elite fund-raising circles Gorenberg was entering. Every election cycle, politicians looking for money traveled a well-worn circuit of important donors.

Two big changes had just come about when Kerry got going in 2003. The McCain-Feingold campaign-finance law had taken effect for the first time in a presidential campaign, limiting the large “soft money” donations to political parties that Democrats in particular relied on; for years, they had solicited large donations from corporations and the rich to build the party. Now the only way to raise money was to attract small donors, a task Democrats had never done well. (The law limited individual donations to a presidential candidate to $2,000 for the primary and general elections each in 2004; the limit increased to $2,300 for 2008.) The other important change was the Iraq War, which had energized the Democratic Party.

Gorenberg, a partner in the San Francisco venture-capital firm of Hummer Winblad, was representative of a certain kind of prosperous Northern California Democrat whom the war and the general climate of Bush-administration malfeasance had pushed from casual supporter to committed activist. And he was representative of Silicon Valley, in that he thought in terms of networks. Partly, this was his job: a venture capitalist looking to invest in the next big thing must know everything that is happening and everyone who is making it happen. But everyone else was thinking about networks, too. The Valley was still emerging from the crash of 2001, yet it was already clear that the next boom would be in social-networking entities like MySpace and Facebook, which created vast, interconnected communities on the Web.

Political fund-raising, on the other hand, was stuck in an earlier era. “Take a typical Gore event in 2000,” Goren­berg, an affable and slightly rumpled engineer, told me when I visited his office in a converted brick warehouse on the Embarcadero. “By the time he was the nominee, a fund-raiser might be 20 people in a living room who’d given $100,000 to the party, and 50 to 100 in the backyard at $5,000.”

The engineer in Gorenberg was bothered by the system’s obvious inefficiency. Relying exclusively on the rich put limits on who got involved, and by design the new campaign-finance laws weakened their influence. He had an idea about how networks could help. “If the most that any one person could write a check for was $2,000,” he said, “then the important people suddenly became those who would put their hand up and say, ‘I’ll raise $50,000 or $100,000.’” Ever since Watergate-era campaign-finance laws put limits on the amount that an individual can give to a presidential candidate, “bundlers” who are able to gather many individual checks have been important figures, most recently the “Pioneers” and “Rangers” in George W. Bush’s presidential campaigns. But in the past, everyone tended to draw from the same moneyed crowd.

Gorenberg tapped into his broad network of entrepreneurs and venture capitalists and discovered that many of them were eager to get involved—eager enough not just to give but to tap their own networks to raise money for Kerry. Collectively, these “raisers” generated a great deal of money, and much of it came from new sources, particularly what Gorenberg likes to call the area’s new middle class. “There is a tremendous amount of wealth in Silicon Valley,” John Roos, Obama’s Northern California finance chair and the CEO of the Palo Alto law firm Wilson Sonsini Goodrich & Rosati, told me. “Not just massive individual wealth, but wealth spread collectively among the engineers, lawyers, and executives who made gains in the good years and now have the ability to contribute a $2,300 check without it being a significant hit to them.”

By the end of the 2004 campaign, Gorenberg had surpassed all the old names to become Kerry’s biggest fund-raiser. And for the first time, spurred by these expanding networks, the Bay Area eclipsed Los Angeles as the biggest source of Democratic donations in California.

In Silicon Valley, as elsewhere, Kerry’s loss, while devastating, seemed only to intensify the activist zeal. Goren­berg teamed up with a friend, Nadine North, who recruits executives for tech firms, to pursue a new goal in 2006: helping Democrats win back the House of Representatives.

With guidance from Nancy Pelosi, San Francisco’s reigning power, the pair chose 10 races that looked like good possibilities to help Democrats pick up the 15 seats they needed to regain control. But they worried about how to raise money for a slate of House candidates who lacked the glamour of a presidential nominee. They found their answer in the software industry. After the Internet bubble burst, software companies had been unable to sell expensive systems. Marc Benioff, the CEO of Salesforce.com, hit upon a solution when he dropped the practice of charging full price up front in favor of a subscription model that charged a little at a time for access to software. The idea appealed to companies that lacked the budget or the appetite to write another big check, while the promise of recurring revenue helped reinvigorate the software industry.

North and Gorenberg borrowed the subscription model for their “Win Back the House” project. Instead of asking for a big check up front, as they would for a presidential candidate, they invited each of their House candidates to the Bay Area over the course of the year, so that supporters could give recurrent, but smaller, donations. Most of the donors were from the tech industry, and understood the software-subscription model. They came to enough gatherings, and kept writing enough checks, that the roster of House candidates eventually expanded from 10 to 30. As before, the emphasis was not on writing big checks but on building raiser networks, including people who couldn’t contribute much themselves. By November, North and Gorenberg were among the top Democratic fund-raisers nationwide.

On election night, everyone gathered to watch the returns come in, and this time they experienced a resounding victory: Democrats recaptured the House. “Many of the candidates in the key races were ones we had supported,” North told me. “It really brought the national political landscape home to Democrats in the Bay Area.”