Are for-profit conduits good for political fundraising?

Are for-profit conduits good for political fundraising?

SkimmerHat, a company that bills itself as a “nonpartisan crowdsourcing platform” recently won approval from the Federal Election Commission to act as a for-profit conduit between political donors and campaigns. But one big question worth asking here is whether for-profit conduits are good for political fundraising.   

Conduits can be defined as a person or organization that gathers earmarked political contributions and forwards them on to the donors’ designated candidate. The two types of conduits are bundlers or political action committees.

Bundlers are fundraisers who collect multiple checks for a candidate and deliver them directly to the candidate’s campaign. Bundlers don’t actually take possession of the funds. They simply pass their bundle of political donation checks on to the campaign.

PACs actually deposit the donors’ gifts into the PAC bank account. The PAC then sends a candidate a single check. PACs can accept earmarked funds for a campaign or they can accept general political donations, where the donor has not chosen a specific campaign to receive the donation. The PAC uses the un-earmarked donations to support any campaign that matches their ideological interest.

The for-profit conduit is a creature of a different nature and is most comparable to a professional political fundraiser. The concept is that the for-profit conduit will set up a website where donors can select and make a donation to a candidate. The conduit will then send the funds to the candidate, minus a fundraising transaction fee. SkimmerHat proposed an 8 percent fundraising fee in their letter to the FEC.

The service the for-profit conduits believe they are providing is threefold. First, they say it’s a place where voters can identify candidates that are running in their district. Second, they offer the ability to learn more about and compare candidates in a bipartisan environment. And third, it’s a donation processing service for the campaigns.

From a campaign’s point of view, does it make sense to support for-profit conduits? If the conduit can raise funds from individuals who wouldn’t give otherwise, then yes. Unfortunately, that donation will come at an 8 percent cost over. Eight percent might sound insignificant, but it takes $200 off the top of a max-out gift.

Not only is this fee considerable, but it would probably not behoove a campaign to drive donors to the conduit, where the campaign will lose control of its fundraising message.

The big question is whether or not a for-profit conduit will be able to gather enough fundraising traffic to make a significant impact on a campaign. Without significant donations, a campaign will probably consider the conduit a distraction.

The business road for the for-profit conduit looks rocky, too. They have to:

Build and maintain a website with a current list of candidates (Would they be considered biased if they fail to include a key Republican, Democrat or Independent?) Collect individual data points on each candidate so a donor could learn about and compare the candidates on the issues Compete with campaign websites, major media political news sites, non-profit conduits and PACs for political fundraising web traffic. Process donations in a PCI and FEC compliant manner Reconcile bank accounts Distribute funds and report to campaigns and the FEC gross donations and fees (not an inconsiderable problem) Manage credit card chargebacks Make enough profit to sustain the company through an off political year, a.k.a. “the valley of death” to political consultants.

To simply generate $100,000 in revenue, the for-profit conduit would need to raise $1.25 million in donations. The bad news is that a big percentage of that $100K would be going straight to the credit card companies for merchant processing. As a point of reference, most congressional races don’t raise more than a couple hundred thousand dollars in contributions from all sources.

As an investor, I think I would keep my cash in my pocket and let the non-profit conduits, campaign finance directors and PACs work their political fundraising magic. There are much easier ways to earn a living online.  

Remember, Americans spend more money on bubble gum than what they donate to political campaigns.

Erik currently runs sales and marketing for CMDI, the largest Republican fundraising technology platform. Prior to joining CMDI, Erik founded numerous fundraising technology companies whose products have raised over $300 million for hundreds of political and cause-based organizations.

A version of this post was also published on CMDI’s blog.

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