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This Sequoia and Henry Kravis-backed prediction market wants to turn opinions into money – TechCrunch


Over 15 years ago, the Philadelphia Stock Exchange, which was acquired by the Nasdaq in 2008, and another since then called HedgeStreet, both announced plans to offer investors what are known as contracts. event. The idea was to allow people to bet “yes” or “no” on questions about future events structured as all-or-nothing options, and pay a fixed amount when a result did or did not occur.

At the time, it was a new but controversial idea; it also did not generate enough investor interest to be successful. Today, Kalshi, a young New York-based startup of 33 people is testing the waters again and is doing so with the help of some big investors including Sequoia Capital, Henry Kravis, Charles Schwab and SV Angel who have collectively provided the company with $ 36 million in funding to date.

Their enthusiasm is in part linked to a major hurdle that Kalshi – founded by former classmates and MIT researchers Tarek Mansour and Luana Lopes Lara – overcame last year by securing approval from the Commodity Futures Trading Commission for manage a derivatives exchange.

Mansour says Kalshi’s small team worked closely with the agency at all times to make sure they would be successful. “It was quite a process, because the more problems you have, the more problems appear,” he says now of the process. Hiring a former CFTC clearing officer as Kalshi’s regulator also helped, he says.

Kalshi is also emerging in an age where people consume more, and sometimes more, news articles through their social media feeds and elsewhere.

It matters, Lopes Lara suggests, because “contracts are pretty much tied to news and things going on in the world and relevant in the world right now.” Indeed, while a link to a social media platform is probably ideal, one way for the startup to get in front of the information junkies is to advertise on the Quora Q&A site. (Other more “partnership” mergers are to come, add the founders.)

In the meantime, Kalshi is on a mission to prove he can inspire a new generation of traders – both retail and institutional, accredited and non-accredited – to bet on all sorts of possible outcomes, such as whether or not Turkey will join the ‘European Union by June. next year, which is currently a contract on the platform.

Kalshi – which has a clearinghouse partner who holds all users’ funds to make sure every contract is secured – is seeing some traction. Since its launch in March, the platform has attracted 4,000 users who have accepted its “yes” or “no” contracts which only have two outcomes and pay either 100% if an investor bets correctly, or zero if they do. investor bets badly. That’s a respectable but conservative number of users.

The founders suggest that things will start to pick up speed more quickly this fall, given that Kalshi has “some opportunities to acquire users and grow our user base,” Mansour said.

One of them is the consumer product that people have experienced so far that is available to anyone who wants to contract on their website.

More impactful, potentially, Kalshi also has “a few brokers that we’re going to partner with.” . . to allow people to trade event contracts the same way they trade stocks, commodities or options on their preferred brokerage app, ”explains Mansour, adding that“ by brokers I mean Fidelities and Charles Schwabs of the world ”.

Lopes Lara adds: “People who use Robinhood or Coinbase or other brokers are our first target, given their understanding of investing and their interest in these type of questions and event-driven thoughts for their investments.”

What interested parties need to know not expect event contracts around sports results (“it’s very much like gambling, and we don’t [facilitate] that, ”Lopes Lara says.)

Due to federal regulations, some other areas are also severely prohibited, including contracts for events related to geopolitical events, such as the outbreak of war and political events. (For example, while users might be tempted to bet on California Governor Gavin Newsom’s recall in September, they should re-launch this action elsewhere.)

As for what happens if Kalshi takes off and other brokerage houses or other large financial institutions attempt to create their own event contract offerings, Mansour insists it wouldn’t be so easy for them. . “Much of the work we have done over the past two and a half years is [intellectual property]. Every detail of operations has been designed for event contracts. It would take a little while – especially for some of these larger institutions – to really get into the space. “

Only time will tell.

Other Kalshi investors include Y Combinator and Tinder co-founder Justin Mateen, co-founder of the dating app Tinder. Alfred Lin, the former Zappos executive who became an investor in Sequoia Capital, sits on the company’s board of directors.