Prediction markets have been growing even though regulators are pushing back. Now, the founders of Kalshi and Polymarket, two of the biggest platforms in this space, are backing a new venture capital fund dedicated to startups building infrastructure around these markets.
Backing a New Frontier in Finance
Kalshi CEO Tarek Mansour and Polymarket CEO Shayne Coplan have thrown their support behind 5c(c) Capital, a venture fund aiming to raise $35 million to invest in early-stage companies linked to prediction markets. The fund is led by Adhi Rajaprabhakaran and Noah Zingler Sternig, two former Kalshi employees deeply familiar with market making and operations.
5c(c) Capital takes its name from a section of the Commodity Exchange Act that governs prediction markets, signalling a close connection to the regulatory frameworks shaping the industry. The fund plans to back roughly 20 startups over the next two years, focusing on areas like market making, prediction market indices, and other infrastructure components that support these emerging financial platforms.
Rising Demand Amid Regulatory Headwinds
Kalshi and Polymarket have been at the forefront of a sector that blends elements of finance, speculation, and forecasting. Users trade contracts tied to everything from political outcomes and economic indicators to cultural events and crypto price movements. Trading volumes have recently surged, showing more interest from investors and the public.
Kalshi is reportedly aiming for a $22 billion valuation in its ongoing fundraising, while Polymarket is targeting around $20 billion. This scale highlights strong investor demand for platforms that let people trade based on public opinion and real events.
But the sector remains controversial. Regulators and lawmakers have raised concerns that prediction markets resemble sports betting platforms and should be regulated accordingly. Some states have acted preemptively to ban these platforms, and recent legislation proposed by Senators Adam Schiff and John Curtis could impose strict limits, especially on contracts tied to sports. That would undercut a big chunk of Kalshi’s business.
Industry Moves to Tighten Rules
Both Kalshi and Polymarket have responded by implementing new rules aimed at preventing insider trading and conflicts of interest. Kalshi has banned political candidates from trading on their own campaigns and prohibited athletes and sports employees from trading contracts tied to their sports. Polymarket’s rules go further, banning anyone with confidential information or influence over an event from trading related contracts. That includes company officials, policymakers, and athletes.
The push for stricter guardrails comes after some Polymarket users profited from trades ahead of military actions in Iran and Venezuela earlier this year, raising ethical and legal questions. We don’t yet know how these rules will change user behavior or regulations, but they show the platforms know they’re under close watch.
Building the Ecosystem Beyond Exchanges
5c(c) Capital’s focus on startups building infrastructure suggests a shift beyond just running prediction market platforms. The fund will back companies developing data tools, liquidity provision, compliance systems, and indices — all essential components for a strong ecosystem.
Other backers of the fund include notable venture capital names like Marc Andreessen’s Moneta Luna, Ribbit Capital’s Micky Malka, and Kyle Samani, former managing partner of Multicoin. Their involvement indicates confidence that prediction markets could evolve into a bigger part of financial technology.
More than 20 investors, including portfolio managers from Millennium Management and founders of other prediction market platforms, have already joined 5c(c) Capital, putting it at the center of this growing niche.
Kalshi has also found support from the Commodity Futures Trading Commission (CFTC), led by Michael Selig, who argues that federal law should override state bans. That backing could prove crucial as the company seeks to expand its footprint amid legal challenges.
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Prediction markets are becoming more prominent and complex, and 5c(c) Capital’s launch is a bet on the infrastructure that will support the sector going forward. We’ll have to wait to see if regulators ease up or clamp down, but Kalshi and Polymarket are clearly in it for the long haul.
This article was created with AI assistance.
