3 weeks ago
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Investors are rushing to throw millions at a hot startup called Kalshi as loans or even as unusual we’ll-figure-it-out later cash. Kalshi is an exchange that allows people to bet, as official commodity trading contracts, on the outcomes of cultural events, from election results to how long Taylor Swift’s latest album will top the charts.
Betting on the outcome of the upcoming U.S. election has spiked demand so high that Kalshi surged to the top spot on Apple’s app store, after years of being unranked among the finance category and to the seventh position overall as of this writing.
Kalshi’s need for cash reserves increased sharply to ensure it can provide instant funding for customers betting on the U.S. election. So, over the last several days, the Sequoia-backed five-year-old startup has received tens of millions from investors in short-term loans, according to a source with knowledge of the situation. Additionally, the company is currently in discussions with new and existing investors about raising a formal equity round of as much as $50 million, though it is also possible the startup could raise more, the person said.
Investors who provided capital to Kalshi so the company could sustain its growth until election day included VC firm Neo, one of its earliest backers. Neo’s founder, Ali Pavroti, sent Kalshi a total of $12.4 million, comprised of $5.4 million of Neo’s capital and $7 million of Pavroti’s personal funds, according to the now-deleted tweet posted by Kalshi’s co-founder and CEO, Tarek Mansour. While it’s extremely rare for investors to send money (much less millions) without terms locked down and a signed contract, Pavroti’s message to Mansour said, “We can figure out the terms later.”
Kalshi opened its election market last month after a judge denied the Commodity Futures and Trade Commission’s request to block the trading of elections-linked derivatives. (The CFTC is appealing the court’s ruling.) Since then, the company traded nearly $200 million in contract value, aka – nearly $200 million of people wanting to bet on the outcome of the political race, Mansour told CNBC on Monday. “The demand curve is truly exponential,” he said.
Kalshi rushed to boost its cash position in anticipation of additional betting on the U.S. election. Like most brokerages, the company offers instant funding to new users. This means users can start trading right away, even though it may take two to three business days for the funds to be officially transferred from the customer’s bank account to Kalshi’s.
Although investors suppose that Kalshi’s growth spike will subside after the election, they believe the company grew so much over the last month that it won’t revert to its prior size, the person said.
Since Kalshi won the ruling against the CFTC, other companies began to offer election contract trading for U.S. citizens. On Monday, Robinhood introduced a market for betting on the presidential election. Interactive Brokers also launched election contracts following Kalshi’s legal victory.
In addition to Sequoia and Neo, Kalshi’s backers include Y Combinator, Henry Kravis, and Mantis VC, a fund managed. The company raised a total of $106 million in equity capital and was last valued at $787 million, according to PitchBook data.
