The CEOs of Kalshi and Polymarket are locked in a brutal fight to dominate the white-hot prediction market sector. But, in at least one instance, the two have put competition aside, and each has invested in an upcoming venture firm led by two early Kalshi employees. The fund, named 5c(c) Capital, is raising up to $35 million to invest in prediction market startups, according to a pitch document seen by Fortune.
The new venture firm’s name is a reference to a clause in the piece of legislation that outlined the federal regulation of commodities and derivatives, a category that now includes prediction markets. The fund’s partners are Adhi Rajaprabhakaran, the second trader hired to work at Kalshi’s affiliated market maker, and Noah Zingler-Sternig, Kalshi’s former head of operations.
In addition to Kalshi CEO Tarek Mansour and Polymarket CEO Shayne Coplan, the fund’s early backers are a star-studded slate of venture investors, according to the document. They include the venture giant Marc Andreessen, through the fund Moneta Luna; Micky Malka, the founder of the fintech investor Ribbit Capital; and Kyle Samani, the former managing partner at the crypto VC Multicoin Capital.
Rajaprabhakaran, one of the founding partners of 5c(c) Capital, declined to comment. A spokesperson for Marc Andreessen’s venture firm Andreessen Horowitz declined to comment. Polymarket and Malka didn’t immediately respond to requests for comment.
A Kalshi spokesperson confirmed Mansour’s participation. “Adhi knows that the next few years are critical to build out infrastructure around prediction markets,” Samani said in a statement, confirming that he backed 5c(c) Capital.
Prediction market frenzy
The ongoing fundraise from the two early Kalshi employees comes as prediction markets have become one of the buzziest sectors in Silicon Valley. Kalshi is raising $1 billion at a $22 billion valuation in a round led by seasoned Silicon Valley investor Coatue Management. And its competitor Polymarket is also eyeing a similar valuation of around $20 billion. The trading platforms let users bet on a diverse array of subjects, from where the prices of Bitcoin or Ethereum will land by the end of the week to which college team will win the NCAA basketball tournament.
Amid investor enthusiasm, state governments have tried to crack down on the rise of prediction markets, especially as Kalshi and Polymarket have opened up their platforms to sports markets. Regulators claim that the two prediction markets are no more than sports gambling locales, which must adhere to strict state laws. Kalshi is facing about 20 federal lawsuits that call into question the platform’s legality. And the Arizona Attorney General filed criminal charges against the startup last week.
Kalshi and Polymarket, whose U.S. trading arm isn’t yet live, have argued that prediction markets are different from sports gambling and that the authority of the federal regulator CFTC to regulate prediction markets supersedes the power of the states.
Despite this fraught legal situation, the pitch document for 5c(c) Capital describes prediction markets as a “generational investment opportunity.” The pair plan to back around 20 companies over the next two years, including market makers in prediction markets, designers of prediction market indices, among other categories.
The venture fund’s first close is within the next month.
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