Bloomberg News

Tech Startups Making Millions Off the Presidential Race

July 23, 2012

Technology Startups Making Millions Off Most Expensive Cam

Engineers and developers work at President Barack Obama's campaign headquarters in Chicago, Illinois. Photographer: Joel Kowsky/Bloomberg

Four years ago, Michael Beach was toiling inside the Republican National Committee, overseeing a voter-turnout operation that was overrun by President Barack Obama’s technology-driven grassroots army.

After the election, he and another former RNC aide, then both 28 years old, set out to start a high-tech political consulting company that is now an expanding 50-person operation with offices in Virginia and Boston.

One recent morning, 14 job candidates filed into his fourth-floor office in Alexandria, Virginia, where a wiffle ball net is stowed in the lobby and a pirate flag hangs in the conference room. How many might he hire? “Fourteen, if we like them all,” he said.

The rapid expansion of Targeted Victory showcases the rise of a new professional, political class: a core group of young technology experts who are shunning traditional campaign titles, starting companies and making millions off the most expensive presidential campaign in history. They are cutting a path similar to the one etched by television ad makers in the 1980s, with a dose of Silicon Valley and the dot-com boom’s edginess.

‘Huge Market’

“This is a huge market, and companies will keep forming to try to fill the need,” says Andrew Rasiej, founder of Personal Democracy Media, a New York-based group that focuses on the intersection of technology, politics and civil society. “Every online technique used by Fortune 500 companies will be in the hands of politicians in the next four to eight years.”

Federal candidates and super-PACs have spent more than $46 million so far this election cycle for the services of just three firms -- Targeted Victory and the two major Democratic tech operations, Blue State Digital and Bully Pulpit Interactive, according to a Center for Responsive Politics analysis of Federal Election Commission reports conducted for Bloomberg News.

Targeted Victory’s roster of 45 clients includes Republican presidential candidate Mitt Romney and the super-political action committee American Crossroads, which was formed with the help of Karl Rove, a former political adviser to President George W. Bush.

Billion-Dollar Investments

Meanwhile, inside the presidential campaigns, 30-somethings with tech titles are earning six-figure salaries usually reserved for veteran campaign officials. And two nonpartisan political software startups have raised more than $14 million in investment capital just this year. They are Rally, a 23-employee shop based in San Francisco that built an online fundraising platform, and NationBuilder, a Los Angeles-based firm that provides campaign organizing tools.

The emerging industry is so young that Rally founder Tom Serres, at age 30, refers to himself as “over the hill” and Blue State Digital, founded in 2004, is considered a “senior” player.

Democratic strategist Joe Trippi, who ran former Vermont Governor Howard Dean’s 2004 presidential primary campaign and was the first to use such online tools as meetups to organize supporters, put it this way:

“When I was growing up in politics, the wisdom was to look for a 50-year-old mentor. Now, if you’re 50, you should be looking for an 18-year-old to help you deliver the message in a way that people will get it.”

Dean Campaign Veterans

Dean’s failed campaign gave birth to Blue State Digital, which was created by four former campaign aides who’d labored shoulder-to-shoulder in the cramped Burlington, Vermont headquarters nine years ago. It specializes in helping candidates develop digital databases for fundraising and voter turnout, penetrate social media, and place online advertising.

The firm opened with just one client, America Coming Together, a nonprofit group funded largely by billionaire investor George Soros to register and mobilize mostly Democratic voters.

“I had come out of a venture capital background, so I knew there would be a market for the technology business in politics,” says Thomas Gensemer, who joined the Dean aides from America Coming Together about six months into the new company and is now its managing director.

Game-Changing Client

The firm grew to include Walmart Watch, a group that tracks the giant retailer’s employee relations, as an early client. As the 2008 Democratic presidential primary kicked off, it landed a game-changing client, then-Senator Obama of Illinois.

Blue State now has 160 employees and five offices, including an industrial-style loft in Washington’s Penn Quarter that Gensemer personally decorated. Bicycles hang on blue- painted walls, there’s a rotation of “office dogs” that sit at their owners’ feet and Fridays are “griddle day,” when employees make pancakes and waffles.

Plus, “we sort of look like an Apple (AAPL:US) commercial,” says spokeswoman Katy McKegney, gesturing to the Macbooks and i-gear that top almost every desk, including ones designed for standers -- it’s healthier than sitting.

Blue State has reaped more than $4.5 million from federal candidates this year, including $2.6 million from Obama. Gensemer says political spending accounts for about 10 percent of business, while corporate clients include Ford Motor Co. (F:US)

Blue State Acquisition

The closely held firm’s prospects attracted WPP Plc (WPP), the world’s largest communications services group, which acquired it in December 2010 for an undisclosed amount.

Blue State’s “annual revenue has grown in excess of 30 percent per year since its founding in 2004,” WPP said in a news release at the time.

There’s a cyclical effect in tech spending. Campaigns including Dean’s and Obama’s have begotten tech firms, which have begotten digital strategists and firms to work on campaigns.

Andrew Bleeker led Obama’s 2008 online advertising strategy. Afterward, he formed Bully Pulpit Interactive, a company that develops digital marketing strategy and places online advertisements. Obama’s re-election campaign hired the firm and has paid Bully Pulpit $25 million to place web ads.

The company gets a percentage of those payments. Bleeker declined to comment for this article. A person familiar with the company’s campaign Obama contract said Bully Pulpit’s rate is less than 7.5 percent, which is what Beach said Targeted Victory is charging for similar services.

Inside the Campaign

In addition, Blue State executives Joe Rospars and Teddy Goff are now inside the campaign heading Obama’s in-house digital shop. They oversee more than 100 employees covering a floor of the Chicago re-election headquarters. The campaign has paid Goff, its digital director, about $110,000 so far; Rospars, the campaign’s chief digital strategist, is paid through Blue State.

Similar employment arrangements exist in the Republican camp.

In Boston, Zac Moffatt is on leave from Targeted Victory, which he co-founded with Beach, to serve as Romney’s digital director. Moffatt has earned $158,125 since joining Team Romney in May 2011, making him one of the campaign’s top-paid employees.

A new dad, he tosses a box of Huggies diapers into the trunk of his black Audi hatchback on a June afternoon before making the walk between Romney’s Boston headquarters and his company office a few blocks away.

Digital Kingdom

He oversees Romney’s digital kingdom of more than 80 employees, many of whom are in a second-floor office decorated with oversized bean bags. His assignments include everything from placing Google search ads to monitoring the campaign’s messages on Twitter.

Romney’s campaign paid Targeted Victory more than $7 million through the end of June, the latest FEC reports show, to assist with digital tasks such as online fundraising.

“People ask if we have parity with Obama’s digital team,” Moffatt says. “We achieved parity the day we got senior staff shortly after the primaries. The gov puts a premium on this. We are a core part of this campaign.”

Super-PACs and non-profit groups involved in elections also are expanding their digital shops.

American Crossroads has paid $167,544 to Targeted Victory for its services. The firm handles the paid placement of ads and videos they’d like to reach the eyes of particular groups -- college students in Columbus, Ohio, for example -- while Jonathan Collegio, American Crossroads’ spokesman, focuses on social media strategy.

Bush Webmaster

One of the super-PAC’s companion groups, Crossroads Generation, which is aimed at younger Republicans, hired Patrick Ruffini of Washington-based Engage, to develop its presence online. Ruffini had been President George W. Bush’s webmaster.

While most of the new businesses are operating on the national level, at least one firm is looking down the electoral ladder.

There are about 500,000 elected offices in the U.S. -- from president to local school board members. That equals thousands of potential clients for companies offering digital election services from fundraising to creating a social media strategy.

Joe Green, who worked for 2004 Democratic presidential nominee John Kerry and was a college roommate of Facebook Inc. (FB:US) founder Mark Zuckerberg, formed NationBuilder about a year ago to offer state and local candidates $50-per-month access to slick-looking websites and data tools.

‘Super Useful’

“It’s not that expensive, and it’s super useful, like the price of a gym membership or a cell phone,” Green says of the cost. NationBuilder enables customers to set up a website, raise money online and keep track of supporters and contributors.

The Los Angeles-based company has 30 employees and 900 clients, including Newark, New Jersey, Mayor Cory Booker and Utah Republican Representative Jason Chaffetz, Green says.

The company announced in March it had raised $6.3 million in investment funds, led by venture capital firm Andreessen Horowitz. Green declined to discuss the company’s finances, saying only that it has “seen enormous growth this year.”

To contact the reporter on this story: Julie Bykowicz in Washington at jbykowicz@bloomberg.net

To contact the editor responsible for this story: Jeanne Cummings at jcummings21@bloomberg.net


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