First Time Founders with Ed Elson – How Kalshi Made it Legal to Bet on this Election

Summary

Podcast Title: The Prof G Pod with Scott Galloway
Episode: First Time Founders with Ed Elson – How Kalshi Made it Legal to Bet on this Election
Host: Ed Elson
Guest: Tarek Mansour, Co-founder and CEO of Kalshi
Published by: Vox Media Podcast Network
Episode Duration: Approximately 53 minutes

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Introduction to Kalshi and the Unique Election Betting Market

[01:49] Ed Elson:
The episode opens with Ed Elson introducing the concept of Kalshi, a pioneering platform that has made it legal for Americans to bet on future events, including elections. He highlights the uniqueness of this development in U.S. history and introduces Tarek Mansour, the CEO of Kalshi, who has successfully navigated the regulatory landscape to bring this idea to fruition.

[03:29] Tarek Mansour:
Tarek expresses excitement about the discussion and delves into his personal experiences, sharing a humorous anecdote about a TikTok video featuring an Uber driver betting on Kalshi during a Tesla ride. He clarifies that while Kalshi has legalized betting on events like elections, it does not condone betting while driving, emphasizing safety and responsibility.

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Understanding Kalshi: The First Legal U.S. Prediction Market

[06:29] Ed Elson:
Ed seeks to clarify for listeners what Kalshi exactly does, prompting Tarek to provide a comprehensive overview.

[06:33] Tarek Mansour:
Kalshi is described as the first legal prediction market in the United States where users can bet on binary outcomes—yes or no—regarding a wide array of future events. Examples include political elections, weather patterns, economic indicators like inflation rates, and legislative changes. Tarek emphasizes that while Kalshi covers many event types, it excludes violent events and sports for now.

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Genesis of the Idea: From Goldman Sachs to Creating a Transparent Exchange

[07:05] Ed Elson:
Ed inquires about the inspiration behind Kalshi's inception.

[07:01] Tarek Mansour:
Tarek recounts his time at Goldman Sachs and Citadel during the tumultuous 2016 election and Brexit periods. He observed that institutional investors were keenly interested in hedging against political outcomes but faced high fees and limited accessibility. This realization sparked the idea of creating a transparent, exchange-based platform akin to the New York Stock Exchange, where anyone could trade on event outcomes with fair fees.

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Navigating Legal Challenges and Regulatory Hurdles

[08:22] Ed Elson:
Ed probes into why betting on elections was previously illegal, seeking to understand the regulatory barriers Kalshi had to overcome.

[08:28] Tarek Mansour:
Tarek explains that although prediction markets have historical precedent, they often face scrutiny under gambling laws. Unlike commodities where traders hedge natural risks (e.g., farmers speculating on grain prices), betting on political outcomes was deemed gaming without economic value, leading to its illegality. Kalshi spent three years lobbying and working with the Commodity Futures Trading Commission (CFTC) to demonstrate the economic relevance and risk transfer benefits of legalized prediction markets.

Notable Quote:
Tarek Mansour: “We just gotta ride it out. It was a war of attrition. And you have to just keep pushing and keep your conviction.” [03:15]

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Kalshi vs. Traditional Betting and Stock Markets

[14:06] Ed Elson:
Ed posits that much of the stock market involves gambling-like speculation and questions Kalshi’s stance on this comparison.

[14:13] Tarek Mansour:
Tarek agrees, drawing parallels between Kalshi and traditional markets. He differentiates Kalshi by highlighting its regulated nature, absence of a house that sets skewed odds, and reliance on market-driven supply and demand to set fair prices. Unlike casino betting where the house typically has an advantage, Kalshi allows users to trade directly with one another, ensuring transparency and fairness.

Notable Quote:
Tarek Mansour: “Kalshi is not always negative EV in our markets.” [17:33]

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Addressing Bias and Accuracy in Prediction Markets

[27:12] Ed Elson:
Ed brings up concerns about demographic biases within Kalshi’s user base, noting that 90% of Kalshi users are men, which could skew the market’s accuracy regarding election outcomes.

[27:49] Tarek Mansour:
Tarek acknowledges the demographic skew but argues that the trading behavior of women on Kalshi does not fundamentally bias the market towards any particular outcome. He emphasizes that prediction markets rely on participants acting in their self-interest to make accurate predictions, supported by institutional liquidity from firms like Susquehanna and SIG.

Notable Quote:
Tarek Mansour: “Smart money brings back the prices to where it should be because there is incentive to do so.” [32:30]

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Kalshi’s Business Model and Competitive Landscape

[35:43] Ed Elson:
Ed shifts the conversation to Kalshi’s business mechanics, asking how the company generates revenue.

[35:50] Tarek Mansour:
Tarek explains that Kalshi operates similarly to stock exchanges, earning revenue through transaction fees of 1-2% per trade. Additionally, Kalshi differentiates itself by offering variable interest on deposited funds, fostering an ecosystem where users can earn on their open positions. He notes the high upfront costs due to regulatory compliance and infrastructure development but underscores the low marginal costs as the platform scales.

[37:39] Tarek Mansour:
Regarding competition, Tarek identifies offshore crypto-based prediction markets like Polymarket but highlights their lack of regulation and prevalence of wash trading. He asserts that Kalshi’s regulated status ensures trust and reliability, making it the preferred choice for American users.

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Founder’s Journey: Overcoming Insecurities and Building Conviction

[41:18] Ed Elson:
Ed invites Tarek to share his personal entrepreneurial journey, exploring what inspired him to establish Kalshi.

[41:34] Tarek Mansour:
Tarek details his background, growing up in Lebanon and Brazil before meeting his co-founder, Luana Lopez Lara, at MIT. Both were passionate about mathematics and finance, but the idea of a regulated prediction market organically emerged from their collective experiences and observations in the financial industry.

[46:28] Ed Elson:
Ed asks how Tarek builds confidence, especially given the public scrutiny and pressure of leading a highly visible company.

[46:28] Tarek Mansour:
Tarek admits to having insecurities and not being naturally confident. Through facing public challenges—both positive and negative—he has learned to detach personal identity from company outcomes. Emphasizing hard work, resilience, and maintaining a long-term perspective, Tarek underscores the importance of focusing on daily efforts rather than external validations.

Notable Quote:
Tarek Mansour: “Nothing is ever as good or as bad as it seems.” [50:28]

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Future Predictions and Closing Thoughts

[52:00] Ed Elson:
As the conversation nears its end, Ed seeks Tarek's expert opinion on the upcoming election.

[52:00] Tarek Mansour:
Tarek refrains from making definitive personal bets, citing his role as Kalshi’s CEO. However, he trusts Kalshi’s market indicators, noting a 60% probability in favor of Kamala Harris but emphasizes the race remains a close coin flip. He encourages listeners to consider both polls and market-based predictions to form a more comprehensive understanding of electoral dynamics.

[53:10] Ed Elson:
Ed concludes the episode by thanking Tarek for his insights and contributions, acknowledging the valuable perspective Kalshi provides in the realm of prediction markets.

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Key Takeaways and Insights

• Regulatory Innovation: Kalshi stands out as the first legal prediction market in the U.S., achieved through persistent regulatory advocacy and demonstrating economic value in event-based trading.

• Market Fairness: Unlike traditional gambling venues, Kalshi ensures fair play by allowing users to trade directly without a house advantage, relying on market-driven pricing mechanisms.

• Economic Relevance: Prediction markets like Kalshi’s can serve as valuable tools for gauging public sentiment and forecasting events, complementing traditional polling methods.

• Business Model: Kalshi operates on a transaction fee basis, similar to stock exchanges, and distinguishes itself through regulated operations and offering variable interest on user deposits.

• Founder’s Resilience: Tarek Mansour’s journey underscores the importance of perseverance, hard work, and maintaining a long-term vision despite external pressures and personal insecurities.

• Market Accuracy vs. Polling: While Kalshi’s markets offer real-time insights based on user behavior and institutional participation, they are not meant to replace polls but rather to complement them, providing a multifaceted view of future events.

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Notable Quotes

• Tarek Mansour on Overcoming Challenges:
  “We just gotta ride it out. It was a war of attrition. And you have to just keep pushing and keep your conviction.” [03:15]

• Tarek Mansour on Market Fairness:
  “Kalshi is not always negative EV in our markets.” [17:33]

• Tarek Mansour on Prediction Accuracy:
  “Smart money brings back the prices to where it should be because there is incentive to do so.” [32:30]

• Tarek Mansour on Founder’s Resilience:
  “Nothing is ever as good or as bad as it seems.” [50:28]

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Conclusion

This episode of First Time Founders offers an in-depth exploration of Kalshi, a groundbreaking platform that has redefined the landscape of prediction markets in the United States. Through candid discussions, Tarek Mansour provides listeners with valuable insights into the challenges and triumphs of establishing a regulated betting platform, the intricate balance between regulation and market freedom, and the personal journey of leading a disruptive startup. For anyone interested in the intersection of finance, technology, and regulation, this episode serves as a compelling case study of innovation driven by conviction and resilience.

Transcript

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[Liz Ann Saunders]

Create support for the show comes from the new season of Crucible Moments, a podcast from Sequoia Capital. What is a Crucible Moment? It's a turning point where we face a tough decision and our response can shape the rest of our lives. These decisions happen in business too, and Sequoia Capital's podcast Crucible Moments gives you a behind the scenes look, asking founders of some of the world's most important tech companies like YouTube, DoorDash, Reddit, and more to reflect on those critical junctures that defined who they are today. Tune in to season two of Crucible Moments today. You can also catch up on season one at cruciblemoments.com or wherever you listen to podcasts.

[Ed Elson]

Scott we're two days away from the presidential election. I know who you're voting for, but who do you have your money on? I'm actually thinking of going into one of these gambling markets and placing some money on Harris. They have 300,000. This is where the money and the ground game kicks in. They have 300,000 volunteers getting people to the polling station, making sure they know where the polling station is, banging on doors. When you bang on a door and someone says yes, I'm voting for that person, they are much more likely to actually go vote. Supposedly they have 300,000 people on the ground, feet on the street over the next two weeks. And estimates are Trump claims he has 50,000, which means he probably as 30. So I like our ground game, I like our choices. I recognize I'm hugely biased here, but I wonder if people are just sick of the chaos. Anyways, I think Harris is going to be our next president. Welcome to first time Founders. I'm Ed Elson. This election is very unique for a lot of reasons, but one of them is that for the first time in our nation's history, Americans can better on it legally. My next guest is responsible for that change. He created the country's first CFTC approved prediction market that lets you trade on future events, including the election. And if you're a regular consumer of politics, you've likely heard of this company before. This is my conversation with Tarek Mansour, co founder and CEO of Kalshi. Tarek Mansour, thank you for joining me.

[Tarek Mansour]

Well, thanks for having me. I'm excited.

[Ed Elson]

I'm just going to start with I was driving over here. I was in the Uber over here and I was just scrolling on TikTok. Yeah, this is 100% true. About 20 minutes ago. And this was the video that came up. I'm just going to show you what this video is. Can you, can you see this?

[Tarek Mansour]

Yeah, I'm looking, I'm looking.

[Ed Elson]

Caption is Uber driver kicked us for saying he's going to lose his bet on Trump.

[Liz Ann Saunders]

Uber driver is literally kicking us out because we're not Trump supporters.

[Tarek Mansour]

That's not why I'm kicking you out. I'm kicking you out because you make fun of me. Because we made fun of you for betting. You're betting while driving. Why are you doing that? Okay, if you want to do it, you're out. You're out. You're out.

[Ed Elson]

For people who are not watching on YouTube, it is an Uber driver who is betting on Kalshi on Tarek's platform, on the election, on his actual screen on the Tesla. And then the passengers are complaining about it and he's kicking them out. Your reactions to that TikTok I saw 20 minutes ago.

[Tarek Mansour]

Well, I mean, it's pretty ridiculous, but I mean, first of all, don't bet and drive. I mean, you know, so. So we legalize betting in the US but not betting and driving at the same time. That is actually dangerous.

[Ed Elson]

That's good. Okay.

[Tarek Mansour]

You know, I think betting on the election is not dangerous. Betting on the election while driving, that, that is actually dangerous.

[Ed Elson]

Very different.

[Tarek Mansour]

So, so do not do that. I call. She's not advocating for doing that, but pretty cool, though.

[Ed Elson]

It's crazy. And I will also say you are everywhere right now. There are articles about you. A lot of very negative articles are about your company. We've talked about your company multiple times on the Pod We've had debates about whether it should exist or not. So I would like to just get your. On a personal level, how does it feel to be everywhere right now?

[Tarek Mansour]

Yeah, we are in a lot of places. I mean, I think, you know, it's. We are, we're obviously ramped up the marketing. We have billboards. I don't know if you saw these live billboards. I did. These are actually, if you bet on cashier right now, it will show up live on billboards in New York, Vegas, la, pretty much every single major city. So yeah, I mean it's a big moment. Look, personally, on a personal level, I mean, I think there's ups and downs in companies. I think what Luana, my co founder and I have learned, you just gotta ride it out. Like we're less volatile now. Like we feel the a bit less and we feel the downs a bit less and everybody's super excited and loves us right now. And in four months we're not the news anymore and people forget about it and it goes on and on and that's what building a company is, right? Like people, you know, there was tweet today that is like, oh, Cash has the newest quote unquote, overnight success. But they've been grinding it out for, you know, God knows how many years. So it's a grind. There's been a lot of down moments, a lot of pain. But these up moments make it worth it. It's really fun to do. But I honestly, I don't think we really care about the attention so much as much as like, we just love this product. Like we love that people can, you know, trade on the election. Right now we're having these real time odds. You know, we love that we're providing and we believe we're providing more truth and we can talk about that. But it's been tiring as well. We've been working 247 for people, for.

[Ed Elson]

People who don't know, I think most do. What actually is Kalshi.

[Tarek Mansour]

So Kalshi is the first legal prediction market in the US So the first legal place in the US where you can bet yes no or trade yes, no on any future events. So who will win the election? As of this October, we can talk about us winning the lawsuit, but also will it rain tomorrow? Will inflation go up? Will the Fed raise interest rates? Will Covid come back? Will TikTok get banned? Really, anything you can think about? We don't do violence, war, terrorism, assassinations. And as of now we don't do sports.

[Ed Elson]

And how did you come up with this idea.

[Tarek Mansour]

So I worked at Goldman Sachs when I was at MIT. So at MIT, I interned at Goldman Sachs in 2016, and I also worked at Citadel and a few other places. But at Goldman, something striking happened in 2016. That summer, most of the institutional money, like high net worth individuals, family offices, just big, you know, rich corporations or people. It was crazy because they weren't asking about the instruments that we were trading. You know, there's like options and swaps and credit defaults and all these complicated things. But no one actually gave a shit about that, like what people cared about. They were like, what do we do about the election? What do we do about Brexit? So those two were happening right in that fall. And it was like, we want to bet on the election or we want to hedge against Trump. Like bet on Trump or hedge against Trump. Bet on. At the time it was Hillary or against Hillary. And so we come up with these bundles and you see them right now, like Goldman and JP Morgan, they all like the Trump bet the Trump bundle, whatever.

[Ed Elson]

Yeah.

[Tarek Mansour]

And it was weird because one, it was a proxy. It wasn't exactly what they wanted for it was, it was indirect. Two, we would charge them crazy fees. It's over the counter, not on exchange traded. And three, this is the thing that hurt me the most, which is like, why is it not accessible for everyone? Well, they're doing it. Why can't anyone do it? So the idea of building, hey, like what if you build a New York stock exchange where this is actively traded, it's transparent, everyone can see and anyone can access. It's like an exchange where you can bet on event or you can trade on event the same way you trade a stock. That was the genesis of Kalshi. It was illegal. We spent three years getting it regulated and we did get it regulated by the federal government.

[Ed Elson]

So you said at the time betting directly on an election was illegal. Why was it illegal?

[Tarek Mansour]

It was kind of never regulated in the us but it was done a lot. So it was insane. If you look at the New York Times and publications back in 1900s, 1800s, they had like live tabloids of live vets, live election bets. Yeah. And it was huge. It was huge. Like even back in the time, it was like, you know, hundreds of millions if you adjust for inflation. But I don't think it's election specific. I think it's like financial instruments consistently, consistently. Whenever they come in and they're new, they face scrutiny. It's like, is this gambling? Is this not. Yes, I Don't know. Did you know grand futures? You know that at some point they were going to get illegalized?

[Ed Elson]

Is that right?

[Tarek Mansour]

People were saying. People were saying it was going to be gambling and there was a Supreme court decision in 1905 that legalized them. Yeah, he said, like, look, some people speculate, yeah, sure. Some people are quote, unquote, gambling or betting on grain futures, which is true. It's still true today.

[Ed Elson]

Yeah.

[Tarek Mansour]

But they have economic value because people hedge and people use them to know what the price, the future price of grain is going to be. And that's very economically relevant.

[Ed Elson]

So why was the election contract, the one they said no to? They said, yeah, we're down with you trading on the weather.

[Tarek Mansour]

Why elections?

[Ed Elson]

Yeah. As you point out, the economic value argument doesn't seem to hold up because there's no economic value necessarily in understanding what if it's going to be rainy tomorrow. So what was the sticking point on the election question?

[Tarek Mansour]

So, look, I mean, I think there's like a. Well, first of all, I do think whether it's going to rain tomorrow or not is very important. I do think it has economic value.

[Ed Elson]

Let's hear that. Let's hear that. Yes.

[Tarek Mansour]

I mean. Well, I mean, I think, you know, the OG traders of the weather are actually the farmers.

[Ed Elson]

Right.

[Tarek Mansour]

It's like a normal, like, you know, you know how like there's this lingo of orange futures forecast the weather better than the Weather Channel.

[Ed Elson]

I didn't know that, but I love that and I'm sure that's true.

[Tarek Mansour]

And they do, because actually oranges are very fluctuate a lot with the weather, like the harvest and the prices of oranges fluctuate a lot with the weather. But so, you know, forecasting the weather is very important, actually.

[Ed Elson]

Okay.

[Tarek Mansour]

And you can extend it to knowing whether a hurricane is going to hit a certain territory versus not. Like we actually have people in the Keys in Florida and every hurricane season, it's interesting, we do have a phone number on Kalshi. We keep it very hidden because we don't want a lot of people to call us and support. We get flooded. No one uses it. Right. People use Zendesk and chat and. But actually around hurricane season, we start getting phone calls and it's basically people from the Keys in Florida that usually, you know, it's a bit kind of like older, older generation and so on. Insurance companies have pulled out of the Keys in Florida. They don't insure, they don't love insuring and taking the risk because there's Been so many hurricanes. It's kind of like a very dangerous area. But we have a market about that.

[Ed Elson]

Right.

[Tarek Mansour]

So people put on a hedge on couche against damages to their properties against a hurricane hitting their time. So that's economically relevant. That's insurance. That's important. Like, that's important to do. And yes, some people are speculating, but that's true for insurance. Right. If you're insuring against something bad happening, someone else is speculating on that. On the other side, which could be the insurance companies and so on. You asked about elections. I mean, look, I can't speak on behalf of regular, but the thing that happens is, like, there's always a sort of official and unofficial. Like, I think the official response was like, hey, trading on the election is gaming.

[Ed Elson]

Yeah.

[Tarek Mansour]

That's no different than going to a casino and betting on a slot machine or betting on the outcome of roulette. And I think you're asking a good question, like, how is that gaming? But whether it's not, that sounds like a weird line to be drawing. So there's an unofficial answer. It's just like, people have found it to be taboo. D.C. doesn't love the idea of people trading on the election. Generally speaking, that has always been true. But that does not mean it's a bad thing. Right. And. And so we argued in court, actually, it is. It is a. It's a. It's a tremendous proposition to be arguing that elections are a game.

[Ed Elson]

Right.

[Tarek Mansour]

If elections are a game, what are. What are we all.

[Ed Elson]

What are we doing?

[Tarek Mansour]

What are we. What are we doing? Right. Like, what if. What do people get? So, I mean, you know, if elections have no economic impact on society, that is hedgeable, like, clearly, like hedgeable, and you can transfer risk with respect to, then why do we care so much? Like, you know, and we won. Right. I mean, the law is on our side very squarely.

[Ed Elson]

How did the ruling go down? What were some of their reasons for why. You are correct.

[Tarek Mansour]

So, I mean, we have always been consistent about the law. We're like, look, I think the law says the underlying. The thing that you need to be trading on cannot be gaming. Right. And we argued elections are not a game. Right. Elections are not. Are different from looking at, you know, two boxers fighting and betting on the outcome. Right. Like or rolling a dice and betting on the outcome. And at a high level, the way to think about that. And how do we differentiate these from betting? Look, I'm okay with people calling this betting. I'm actually okay people. When Semey Launched water futures, one of the most economically relevant commodity like financial instruments you can imagine. It's water. People call it betting. Oh, now you can bet on the water. Okay, fine. So that's fine because betting is very similar to speculation. Are people betting on the stock market? Yes, in some forms. But that doesn't mean the stock market in of itself is bad. But there is a line to be drawn and the line is artificial risk versus natural risk. Right. If you and I, right now, I don't know, like pick a pick dice and roll it and we bet on the outcome, we create an artificial risk so we can speculate on it. That's entertainment. We're having fun with it. Right? Brexit happening or not, hurricane hitting somewhere, TikTok being banned or not, Legislation, elections are natural risks. They exist independently of you and I. And once there's a risk that exists, you now have the need for a market to transfer risk from people that have it but do not want it, they cannot bear it, to people that don't have it and have capacity for it. It could be hedge funds, it could be large institutions, it could be people, it could be people that want to speculate and so on and so forth. And that's why we have a derivatives market. It's risk transfer, essentially.

[Ed Elson]

I think that the majority of transactions that are happening on the stock market are gambling.

[Tarek Mansour]

Sure.

[Ed Elson]

I think that's true of options too. I think that's true of trading and that's okay. And we're down with that. And I don't think it's necessarily a good thing, but I almost don't feel like it matters whether it's a good thing or not. It just is. It's something that people do and that's okay. And so that's how I view Kalshi. I'm like, in my view, I think it is gambling in most cases. It'd be interesting to see if you agree with that. But that's fine with me. If you want to gamble, you can gamble and that's okay. And the other side to this is gambling is legal. You can go to the casino and gamble and you can bet on a boxing match. So why. I still don't fully understand what the regulatory questions are here because there are many, you know, in many states you can gamble on sports, you can do whatever you want.

[Tarek Mansour]

Look, honestly, I think that's a very informed view and I love that because like I've learned to believe, like the simple statements like gambling on elections is bad just resonate better, you know, than like telling people like, hey, you should get informed, like read why economists love these markets. Why like people don't like going below the surface. They just like hear the thing and like, you know, great. So but like, and by the way.

[Ed Elson]

I just want to point out like again, I kind of agree with that personally, I don't want to gamble on the election personally.

[Tarek Mansour]

But you think it's like fine, but it's fine.

[Ed Elson]

I mean, I also don't want to like smoke chain smoke cigarettes all the time.

[Tarek Mansour]

Yeah, I mean, no, no, I think like I would say a few things and I kind of like addressed a few. So let's talk about some of the kind of alternatives and we come back to our market. So yeah, credit default swaps, which are basically a way to insure against company debt. Right. So generally the market for that is around like, I think per year. Today it's like in the tens of billions of dollars. Like maybe close up to 100 billion. Right. That's the market for hedging actual debt. But the trading volumes, the volumes are actually closer to trillions. So you have a solid like 10 to maybe even like 50 X factor.

[Ed Elson]

Exactly.

[Tarek Mansour]

What is the rest of that?

[Ed Elson]

Yeah, exactly.

[Tarek Mansour]

That's speculation.

[Ed Elson]

Speculation, yeah. Same with.

[Tarek Mansour]

Yeah, so no, no, it's speculation. So my point is we've just established that in traditional market. And by the way, this is also true for grain futures, for commodity futures, all these things that have a lot of economic value that are important. And the stock market, I actually, you know, do think that most of transactions, stock market are not capital allocation.

[Ed Elson]

That's right.

[Tarek Mansour]

And the reason why you cannot stop speculation, if you take out speculation from the stock market, you know what would happen? There's no more liquidity. Yeah, it dries up. There's no more stock market. There's no transactions anymore. Right. Like there's no live ticking prices. Nothing is happening. So the people that need the capital at that point, the very purpose of stock market fades away. And we've seen that no, stock market weakens capitalism. It you start erring on the side of telling people what to do and what not to do with their money. So it's the same thing here. Yes, there's a lot of speculation and I'll tell you, like majority of things are going to be if the market is liquid on cash, it will be a lot of speculation because for every hedgerow you need multiple speculators, you need that market to be vibrant and you need that type of speculative activity. But it doesn't make the market itself Bad gambling and betting. In my view, though, like, I'm okay with calling betting. It's vacation. Gambling is a bit weird.

[Ed Elson]

Okay.

[Tarek Mansour]

It has some negative connotations historically, which come with. I'm betting against the house. Right. Like I'm going to casino and I'm betting against the house and if I make a lot of money, they'll kneecap me. Right, Right. There's like odds that are tilted against me because the house usually rigs the game so that they always win.

[Ed Elson]

That's a really good distinction.

[Tarek Mansour]

Whereas on Kalshi, and this is why I call it maybe speculation or betting or like the stock market, you're trading against other people, it's fair game. You're not trading against like, we're not the one setting the odds. It's not tilted towards us. You're trading against other people. That is, we just take transaction fees. And so that's a different type of dynamic.

[Ed Elson]

Right.

[Tarek Mansour]

You're not always negative ev in our. In our markets.

[Ed Elson]

Yeah.

[Tarek Mansour]

Hopefully if you're informed. I mean, I'm just trying to think.

[Ed Elson]

Like how sports betting works. I guess that's a lot of.

[Tarek Mansour]

It is against the house sets that you bet against DraftKings or you bet against FanDuel.

[Ed Elson]

Right.

[Tarek Mansour]

There are some new ones where it's like kind of more exchange driven where, you know, I'm betting against you or other people and we are setting the odds by putting orders against each other.

[Ed Elson]

Yeah.

[Tarek Mansour]

So our prices are not set by anyone. It's like actually market supply and demand.

[Ed Elson]

Yeah.

[Tarek Mansour]

It's like the stock market.

[Ed Elson]

Totally. I hadn't thought of that. And I think, I think that's exactly right. So I'm going to. I'm going to go along with you on this that we're down and propose some potential issues. Now that.

[Tarek Mansour]

That's great.

[Ed Elson]

Let's assume we agree. One of the events you can trade on is whether or not Elon Musk will be nominated to the cabinet. To Trump's cabinet.

[Tarek Mansour]

Yeah.

[Ed Elson]

Let's say you're Elon Musk. You've just had a private conversation with Trump. He tells you, I want to have you in the cabinet. What is stopping Elon legally from rigging that market and thus rigging all the other gamblers.

[Tarek Mansour]

Yeah.

[Ed Elson]

Sorry.

[Tarek Mansour]

And that example applies to a lot of event contracts in prediction markets. I mean, that's definitely true. And guess what that example applies to as well.

[Ed Elson]

Stock market.

[Tarek Mansour]

Stock market. Right. Like, and so I should just rephrase.

[Ed Elson]

How do you prevent insider trading?

[Tarek Mansour]

Exactly.

[Ed Elson]

Yeah.

[Tarek Mansour]

There's so many interesting things. So first of all, actually, weirdly enough, insider trading is not illegal in commodity derivatives. Yeah. Because the farmers are trading on grain prices. And obviously farmers have insider information on grain prices. Okay, to be clear, to be clear, that said, we have it in our own rules, okay. Our designation is a designated contract market. It's like a legal designation. And what we are is a self regulated organization. Think of it as a little bit of an extension of a government where we have our own set of rules.

[Ed Elson]

Okay.

[Tarek Mansour]

And these rules are like basically can go from civil prosecution all the way to criminal prosecution. And we have a rule against insider trading. We do have it actually, Kalshi. But that's not because of the law we impose the rule that you cannot trade on material non public information. On prediction markets. On our prediction markets. So if you do, you're actually violating the law.

[Ed Elson]

Okay.

[Tarek Mansour]

Because violating the rules of a NASA are always violating the law.

[Ed Elson]

This is fascinating.

[Tarek Mansour]

Okay, so you violated the calculator rules. You're violating the law and we can prosecute you. You can impose fines all the way to criminal prosecution. You can be prosecuted by the cftc. Basically same way that if a Goldman trader commits insider trading, they'll be prosecuted by the sec. So same thing. Yes.

[Ed Elson]

Yeah.

[Tarek Mansour]

So from a legal perspective, it's the same thing. We established that. Now the question is like how do you enforce against it?

[Ed Elson]

Right, Exactly.

[Tarek Mansour]

Same thing as the stock market, right? Like if Elon has a product announcement or any. Actually anyone at Tesla has an upcoming product announcement and they call their cousin and they say, hey, this is coming. You should load up on Tesla options. How does the New York Stock Exchange police against that? Right. They have actually a very good mechanism and we have the same ones that we've built over the years. So we have first of all, like we have surveillance systems that are constantly ingesting trading data and seeing weird artificial patterns, right? Like if someone is loading way out of the money, buying stuff that's trading at 10% and suddenly it moves to 90 the next day. Those usually get flagged. Especially if the transactions are large, they get flagged and they go to investigation. We have a whole investigation department that basically investigates who they are. Because we KYC people, we know who they are, we ask them questions. We know it's like opening a brokerage account. So we have their SSN and so on. And then they can be escalated for an investigation where we figure out why did you place that trade and how did it come to fruition? Very similarly to how insider trading is monitored on stocks is this perfect? No, but people do do insider trading on stocks. The most important thing to flag when insider trading becomes vile and bad is when it's large. Like, the larger, the more important it is to flag. Like if someone puts $10 on Tesla options because they had some of their cousin told them something like, is that going to be flagged? Probably not. Now if that $10 turns into $20 million, that's a very different story. But also $20 million is much easier to flag.

[Ed Elson]

You figured out the regulation. That's your big innovation. Exactly. And you described how when you're working at Goldman and these family offices would want to make bets on the election, I would bet that Goldman is looking at Kelshi right now and they're thinking, holy shit, they're about to take our entire trading business. Or at least in that aspect of things where people want to make these sort of narrative driven bets. And why wouldn't they just do it on Kelshi? They don't need Goldman to bundle up this special options package for them. They can literally just bet on the story. And it's all because you guys figured out the regulation. How did you do that? And what did you learn about the regulatory system? What about your process actually pushed this through?

[Tarek Mansour]

It took a long time because you need to imagine it's three years. All we're doing is regulation. I'm drafting law and policy and regulations. All day, all night, everyone around us was saying, this is never gonna happen. Every single lawyer. I mean, when we first started the company, one day we called 65 lawyers, all of them said, no, it's not happening, this is stupid. Yeah. And. And the CFT wasn't giving us any, like, oh, yeah, we're gonna do this. It was like mostly like, oh, here are all the issues with this thing. And we would go take these issues, fix them, and then there's more issues and more issues. It was like walking through this desert, right? You have no evidence whatsoever that the desert ends. Actually, all evidence has pointed that this desert is not gonna end. And we kept going. And I really think that was it. Like, I think a lot of it is actually. You just have to stick it through. And it's a war of attrition. And you have to just like keep pushing and keep your conviction. And. But what kept us convicted is like, look, we will stop when we get what we want or we are proven wrong. And until we are proven wrong, like literally mathematically proven wrong, like, why shouldn't these markets not exist? Yes, we'll keep going and see what happens?

[Ed Elson]

We'll be right back.

[Liz Ann Saunders]

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[Ed Elson]

We'Re back with first time founders. I want to move on to another topic. So this has become super, super politicized because.

[Tarek Mansour]

Yeah, yeah, the odds are up.

[Ed Elson]

Yes. And a lot of people are looking at the odds on couch right now, which as of today I think they're around 60%. 60.

[Tarek Mansour]

Is it 60 right now?

[Ed Elson]

Let me check.

[Tarek Mansour]

It was I think 60 a day or two ago. I thought it might have dropped to 58. I think 59%.

[Ed Elson]

59? Yeah, 59%. So a lot of people are saying that this is one of the arguments in favor of this, which I don't fully agree with, is that this is an alternative to polls.

[Tarek Mansour]

Sure, sure.

[Ed Elson]

Because it's more accurate than the polls because people are actually putting their money forward. You're drawing from the wisdom of crowds. Yeah. My belief is that this is not necessarily the base truth.

[Tarek Mansour]

Sure.

[Ed Elson]

Because one of the biases that I've noticed, which I saw you guys put your numbers out on your demographics, is 90% of the people on Kalshi are men. And so, you know, my view is baked into this is a level of bias. That means that it can't just be the exact truth. Your points on my thoughts on that.

[Tarek Mansour]

Yeah. No, I think that's a great point. Let me address a few things. Like, you know, and I kind of keep repeating this, and I know you know this, but it feels like general population doesn't understand this. Like, market odds are pricing the probability of a candidate winning. That's not what polls do.

[Ed Elson]

Not what polls are. Yeah.

[Tarek Mansour]

Like, if you're up two points on the polls, you're kind of. You're up more like 5 to 10% in prediction markets.

[Ed Elson]

Right.

[Tarek Mansour]

In odds, that's not the same thing. Right. Like, 60% odds is not 60% in polling. If you're polling 60% up, you won. You're like 90% chance of winning in a certain place. So I think people are overreacting to this in either case. Like the Republican Catholic.

[Ed Elson]

You're going crazy. This has been crazy.

[Tarek Mansour]

I know it's been crazy. No, it's been crazy. I agree. I think the Republicans are kind of taking it as a strong sign of victory, and the Democrats are taking it as a strong sign of, like, defeat, and it's rigged and all. But, like, I'm telling everyone, like, calm down. First of all, this is still a coin flip. It's slightly biased. And if it was in the sports context, like, if Barcelona is slightly disfavored versus Real Madrid, Barcelona wins very often. Like, you know, so that's 1, 2. 10 days is a very long time for these markets. 10 days ago, the odds were 51% Kamala Harris. Now there's 60. It moves. That's like, the whole point is it moves and it's pricing in real time. So that's kind of putting that out there. Now. Now, I don't think sampling bias is a real thing in prediction markets, to be honest. I don't think so. And I don't actually really agree with that. The basic point is actually so fine, there are more men than women on cash. That is true. We released that. We said that publicly, 90% is men, 10% is women. But amongst the women, like, if you just see where women, what women are buying and betting they're actually buying more Trump than Kamala. There is zero evidence right now that if we had 50, 50 women, that it would actually change. Actually, the Trump bias is slightly higher amongst women than it is amongst men.

[Ed Elson]

Interesting.

[Tarek Mansour]

So does it? Definitely. Like, this is not a poll, by the way. This is not saying that more women are going to vote for Trump than Kamala. Not at all. That's not what this is saying. All that this is saying is I don't think this bias is really there.

[Ed Elson]

So, you know, one of the issues with polling that has often happened is that Democrats, historically speaking, have been more down to pick up the phone and to answer the polling question.

[Tarek Mansour]

Sure, sure.

[Ed Elson]

And Republicans, historically speaking, when they hear someone, hey, I'd like to ask you.

[Tarek Mansour]

A few questions about the election.

[Ed Elson]

Fuck off. Yeah, so that's historically been what's happened, and that could totally change. The point being there is a very specific and kind of weird bias baked into the polling, which means that you can't take it as base truth, which I think all of us already know. What I would say, Kelshi, is that you mentioned that the women on Kelshi are actually more pro Trump. I would bet that Kelshi is also attracting a certain type of woman. And the certain type of woman is probably more likely to bet Trump would be my guess. But again, that's total speculation. And my point being both of these things are trying to draw the base truth out of what's happening.

[Tarek Mansour]

But it's biased.

[Ed Elson]

Yeah, they're biased in small different ways. And so the idea that either is more accurate than the other, to me, isn't true.

[Tarek Mansour]

That is a fair point. And I think that there is a difference, though. And that's why that was my second point, actually. So first, I mean, that's kind of the face value. Maybe, maybe. Maybe these women are actually more pro Trump than they are pro Kamala and they want to buy more Trump. That's possible. Yeah, but. And that's important to understand. Like in polls, if that happens, it's done. You poll a bunch of people and you get the number and that's it. In markets, if the true value, if the fair value, the theoretical correct answer is 50, and there is weird flows that are biasing it to 60 arbitrageurs and traders that like making money. I hope that we can all agree that people in America, or really everywhere, like Making money. Like, I hope, like, you know, I hope that like we. There's no disagreement about.

[Ed Elson]

No, I don't, I don't care about money.

[Tarek Mansour]

Like people are greedy. Like, as long as you trust that people are greedy.

[Ed Elson]

I love it.

[Tarek Mansour]

Like people are studying these insanely obsessively. They study the polls, they study how the polls are being made. They study statements, they study historical data, they study the markets. They study other markets like finance, like stocks and so on. Now if this is true, if we are really at 50, 50 and the odds are saying 60 40, there is a multi $10 million incentive to bring it back. And we have institutional liquidity. We have institutional liquidity on the platform. Like really smart money. It is there. It could be individuals that are smart. I mean, we have Susquehanna on the platform, sig, one of our main partners that has been pricing and trading these things forever. We have other prop shops and hedge funds. Some of the smartest people on earth. Like, you know, you can imagine all the names. They're not. SIG is public. The others didn't make it public.

[Ed Elson]

Okay?

[Tarek Mansour]

But smart money brings back the prices to where it should be because there is incentive to do so. Like it. Fine. There is a trump bias in the flow that is like what people consider to be the best type of flow for the Citadels and Susquehannas of the world because they come and trade against it and bring the prices down. And these people are actually trading at a loss, at a negative expected value, and the market makers are trading at a positive expected value.

[Ed Elson]

That makes a lot of sense. What I would say is that the stock market has a lot of liquidity. And oftentimes, as we have seen in the past, the stock market can be wrong about things. People can be just sort of wrong and they can get things irrational. Yeah, they can be irrational. So that is my view on this, is that people are irrational, therefore polls are irrational and therefore markets are irrational. And so this debate over this one's true and this one isn't to me feels a little bit useless. And I guess the question that I would sort of wrap up this specific point to you with is do you think that Kalshi should be replacing polling in some way?

[Tarek Mansour]

I think. Let me address liquidity and then the sort of irrationalism of markets, which I agree with, by the way. So we are very liquid actually, by the way.

[Ed Elson]

Could you just give us the statistics on how, how much money has been waiting?

[Tarek Mansour]

And it's different, by the way. So it's liquidity and people confuse us a bit. With volume.

[Ed Elson]

Okay.

[Tarek Mansour]

Liquidity is how much you can take at a point in time without moving the price a lot. How robust is the pricing and how much you can take on cash. You can take multimillion dollars without moving the price at all. It doesn't move it. The price won't move. So if you take multimillion dollar position, the price won't move.

[Ed Elson]

Wow.

[Tarek Mansour]

You can take up to $100 million.

[Ed Elson]

Which is reflective by the way of how much money is.

[Tarek Mansour]

Yeah, yeah, yeah. But also how much the liquidity providers. This institutional market makers. That's makes the difference between small betting market versus like a stock market. You can take up to 100 million and it won't move the price by more than 1 to 2 cents, 100 million. So it's very hard to move the prices. You need like tens of millions and the impact will be very marginal. So that's 1, 2. I have never said, by the way, these markets are always accurate. Nothing else. We can't say what the future holds. Right. That doesn't make any sense. But what I can say is these markets are more accurate than alternatives. And I do stand by that.

[Ed Elson]

Okay.

[Tarek Mansour]

Right. Like if you look at the mean error of our forecast to everything else, we've been the most accurate on inflation forecast, better than the Bloomberg Economist survey, a variety of other surveys.

[Ed Elson]

Really?

[Tarek Mansour]

Yeah. Fed interest rate decisions, climate and weather, even earthquakes. That doesn't mean we can forecast earthquakes. That's a crazy statement. I'm not making that statement at all. But the alternative is like you hear a pundit on the news or like you hear someone saying something crazy because they want to get some press or whatever. But now you have a mechanism to like, hey, if you have some information about this, come put it to market and get paid for it. And then we get an accurate price from that. But these should not replace polls. They're doing something different. This is an additional source of data. I keep saying more truth.

[Ed Elson]

Yes.

[Tarek Mansour]

I don't say exclusive truth or like we're the only truth. No, we're not. More truth, just 100%. Just get informed. Look at the markets, look at the polls. Maybe don't look at all the crazy videos on TikTok because there's misinformation left and right. Right. But I don't think they should replace polls. They're doing something different. Polls are important. And by the way, these markets rely on polls.

[Ed Elson]

Right? Yeah. That's how they're informing their bets. Right?

[Tarek Mansour]

Yeah. Like how are traders? Like traders. A lot of. I don't know of any traders that doesn't have polling in their methodology.

[Ed Elson]

Let's talk about the business itself. How does Kalshi make money? How has this worked out for you as an actual business?

[Tarek Mansour]

Yeah, so it's again, it's kind of one of the decisions I've drawn. So we're in exchange. So our business model is like New York Stock Exchange or cme. We take transaction fees, like trading fees, so you do $1,000. We take 1 to 2% in fees. So we take 20 bucks on that transaction. That's how we make money over time. I think we have a lot of requests for our data. Like people want to pull data and more granular data. But for now we're making it open source. We want everyone to have it. It's part of the mission. We're not charging for it. And specifically on the election, we're not charging fees right now. We just want to have like we want to promote.

[Ed Elson]

We want everyone in there.

[Tarek Mansour]

We want to get everyone in there. We want the market to do their thing. No kind of barriers, fully efficient and so on. And we're also actually. We pay back the interest. We don't take the interest ourselves. I don't believe in making money off of people's interests. So if you deposit money on Kalshi, both your cash but also your open bets. So if you buy like if you put a position on Camel or Trump right now, that bet will pay you 4.1% annualized variable interest.

[Ed Elson]

Oh, wow. Okay.

[Tarek Mansour]

As it's outstanding and it's cool because if your position goes up in price, like if you bought at 50% and then now it's 60%, you get paid on the marked up position.

[Ed Elson]

Wow. Okay.

[Tarek Mansour]

So you have no opportunity costs. We're paying your interest based on your kind of outstanding bets and positions on.

[Ed Elson]

Kalshi and the expenses. Is it an expensive thing to run?

[Tarek Mansour]

Yeah, regulatory. I mean, we have to think of building the New York Stock Exchange from scratch. So we run a clearinghouse. We have one of the handful of clearinghouses in the US that can really move money and clear. Derivatives exchange. We have the surveillance systems. A lot of very, very heavy infrastructure that took years to build. So it is expensive to run. It's a lot of upfront costs, but the marginal costs are very low. It is very hard business to get into and get the flywheel running for the marketplace. But once it does, it's a very profitable business because the unit economics, the marginal expense is very low.

[Ed Elson]

It's AWS and you have some Significant competitors, but from my understanding, no competitors that have been approved in the U.S. what is the competition?

[Tarek Mansour]

So I mean like, look, there's always been. So there's like offshore, like polymarket is offshore unregulated crypto based predation market.

[Ed Elson]

Oh, it's crypto based. I didn't know that.

[Tarek Mansour]

Yeah, yeah. They actually did get an enforcement action from the CFC two years ago, so they're not allowed to cater to us. And there are a lot of others similar to Poly Market. What I would say is don't trust the volume on these sites because it's not actually true. There's a lot of wash trading. So it's a lot of bots, fake bots, just trading against each other. But it's not economics. Like I give you a hundred, you give me back 100.

[Ed Elson]

And is that because they haven't verified their customers, whereas you have?

[Tarek Mansour]

Yeah, it's, it's like there's no kyc. You don't know who's trading. It's not reported to the government. We can't do that type of thing. But like it's like I give you 100, you give me back 100. That's called wash. Yeah. Which is like not real trading. And so, but the volume just went up by 200. So imagine we do that 10,000 times, a hundred thousand times a day with bots. Suddenly the volume is very large, but it's not real. So that's why we always say like trust the one that's safe, regulated, trusted. And we're only Americans. We don't have foreign kind of participation. For now, we're just only Americans and so on. Look, honestly, competition is good. It's more like, I always think like more people being educated about these markets is a good thing. I believe the regulated approach is the only approach. That's what I believe. That's a strong belief. We firmly hold the company. The last thing I always say is like, I always worry a little bit about the unregulated doing something bad and I always worry about nascent asset classes. Like I always try to advocate like trust the regulated actors and less the unregulated actors. And I hope the unregulated actors come and get regulated and do it the right way.

[Ed Elson]

Yes.

[Tarek Mansour]

So that people can trust this asset class. Because 100% things can go wrong in unregulated venues. And when they do, people don't blame the unregulated venue regulators, blame the asset class.

[Ed Elson]

We'll be right back.

[Claire Miller]

The Capital Ideas podcast now features a series hosted by Capital Group CEO Mike Gitlin. Through the words and experiences of investment professionals, you'll discover what differentiates their investment approach, what learnings have shifted their career trajectories, and how do they find their next great idea. Invest 30 minutes in an episode today. Subscribe wherever you get your podcasts published by Capital Client Group Inc.

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[Ed Elson]

We're back with first time founders. I want to shift gears to your personal journey as an entrepreneur. Tell us a little bit about your background, like what inspired you to get into this. You mentioned you worked at Goldman, you went to mit. What sort of led up to Kalshi in your life?

[Tarek Mansour]

It's interesting because both my co founder and I had like very similar backgrounds. So I was born in la, I grew up in Lebanon. Luana grew up in Brazil. We were both math geeks in school going mit.

[Ed Elson]

So you and this is your co founder, Luana Lopez Lara.

[Tarek Mansour]

Yes.

[Ed Elson]

And you met at mit. At mit.

[Tarek Mansour]

Yeah, so we met at mit. It was kind of like we were both math geeks. We love getting into mit. That was the place for math geeks. And then we both kind of love finance, but we, we weren't like the type that was, you know how like there's a Persona. I was like the entrepreneur, the person that's always building products. I want to be kind of like we weren't that. Yeah, we didn't have that. Like we weren't reading books or listening to podcasts. I think I was very firmly convinced that I was going to be a trader. I was going to be at Citadel. Like I love working at Citadel. Citadel was amazing. It's incredible. But it was one of those things that the idea was just wouldn't, like, let go. Basically. It was just like, the idea was so kind of like constantly in the back of our minds and it was like pulling us to it. Slowly it kept on popping up. Right. Like it's. In some ways the idea pulled us into building the company rather than vice versa. Like we're looking for an idea. It's like the idea just kind of pushed us and we kind of loved it as like this beautiful notion of what if you can apply markets to price the future?

[Ed Elson]

Yeah, right.

[Tarek Mansour]

Like we price anything now. Why don't we price our future? Right? Like, imagine we can ask questions like, will GDP go up if Trump gets elected? Will GDP go up if Kamala gets elected? And you can have a market based pricing for that.

[Ed Elson]

What did the market tell you?

[Tarek Mansour]

Market truth. Right. And that was the elegance of it. And we really liked that. And so slowly we basically just kind of got dragged into it. And they were like, all right, we're going to have to build this company now because we would regret not doing so.

[Ed Elson]

It's almost like there are some ideas that are so obvious that they have to get done. Like, if it. I feel like if it wasn't going to be you, someone else was going to do it. And it's so interesting to me that the hurdle was the regulation and you wanted to be a trader. You clearly have a massive math brain. I doubt you're doing any math these days.

[Tarek Mansour]

Not anymore. Well, we do some. I mean, we've hired people that are a lot smarter than us. Which is, which is helpful. Which is helpful. Yeah. We do less. We do less. For sure. We were making jokes this week, actually. Like, I've slowed down. I was better at math before.

[Ed Elson]

Out of practice.

[Tarek Mansour]

Out of practice.

[Ed Elson]

I'm sure you're good at lobbying now.

[Tarek Mansour]

Yeah, yeah, yeah. I mean, not, you know, but like engaging regulators and. Yeah, politics, definitely better.

[Ed Elson]

But I would like to hear a little bit about that. I mean, first let's, let's talk about maybe fundraising. I mean, you've, you've had huge success in fundraising. You've got some very big name investors. What would you say makes you a good fundraiser? And what are the qualities of a founder who can go out and raise a lot of money?

[Tarek Mansour]

I think I'm a good fundraiser in some ways, but, like, there are better fundraisers for sure. But I think, like, I build relationships with people. I don't play a lot of games. I'm very honest and transparent upfront And I've always kind of had that approach to raising money. And I explain to people like, hey, this long journey, this is a company I'm committed to and we want to build long term. And I think a lot of investors kind of appreciate that because they're used to the games and the kind of. So I just usually build relationships with people that I kind of like and I talk to them about the business and I really genuinely consider it as a two sided interview. It's like, do I like this person? Do I think they get what we're trying to build? And I think like all things, it's a bit like dating and you have to be convinced that what you have is valuable, you know, And I never meant to claim like Kashi is going to be. I hate these claims. Like, and all founders do that. Like, we are going to be.

[Ed Elson]

We're the next Apple.

[Tarek Mansour]

Yeah, we're the next Apple. We're going to be $100 billion company. Like, I don't know that. Right? Like, I don't say that. There's a lot of things that have to go right for us to get there. But what I do say is it has the potential to. And I do think so. Like, I think we have the potential to be a $100 billion company and if things go our way, that's the size of the tam, that's the potential opportunity. Will that happen or not? I don't know. I can't say for sure. But I will work as hard. I mean, I've shown how hard I'm willing to work and how much I'm going to sacrifice to make it happen. And I think a lot of people appreciate that.

[Ed Elson]

It gets to the basics of just negotiating. Right. And it sounds like that you are, what you are is an incredibly skilled negotiator. And you've kind of proven that through getting this through in your dealings in dc. And what I have found in negotiating is that it does all start with kind of your initial position, which is like, how confident am I in myself and in the product that I'm trying to sell? So you mentioned like a two sided. A two sided thing. It's like, this is where I stand, this is what I'm looking for and this is what I'd like to get from you. That's my position. And it sounds like you are very, very confident about that. And I think the question is for people who want to get good at that, where do you get that confidence from? Like, what do you sort of hype yourself up before you go into a meeting, how do you sort of walk into the room and say, yep, this is who I am. And I'll be unapologetic about it.

[Tarek Mansour]

I'm always like, interested. People like, around me say like, hey, where'd you get the confidence from? But like, I always, like, it always rings a bell. I'm like, I have long periods of lack of confidence. You know what I mean? I have a lot of insecurities in a variety of different ways. And maybe I've gotten tougher over time. People don't see it as much, but people over assume how confident founders are and how it feels on the inside. I think I've really taught myself a few things. We've gotten punched down and beat down so many times. Press loves us at some point and the press hates us at other points. And. And everything that happens at the company is always your fault. And everything that happens at the company is always because you're a legend. Like, anything good you get congratulated for and everything bad you get berated for. And then you realize, actually it's not like I didn't do anything in the last two months. Like, all the work was actually the day in, day out of like, chop wood, carry water. Chop wood, carry water. So I realized, like, actually, like, less things are not in my control than I think are in my control or that people think so. Two, I think I genuinely try to start loving the process. I really do. Like, I now, like, I'm trying not to love too much the attention and not to hate too much the bad times. I'm trying to just like my job and like my work. And I would say that the last one is it's a bit of absurdity of life. Like, don't take yourself too seriously.

[Ed Elson]

Yes.

[Tarek Mansour]

You know, it's like, I'm not a legend. I'm not. I think I'm a pretty good founder. I think I work. And the reason is not because I'm this mythical genius. I work really, really hard. I really do. Anyone around me knows how hard I work and how much I'm willing to sacrifice. I'm reasonably smart. Like, you know, I'm neither a genius nor. But I, you know, and that's because I've partly because of one, and. And I've worked on my EQ over time. Like, I. And I like engaging with people and meeting people and so on and so. But number one is by far and large the most important. That's it. I just work really hard.

[Ed Elson]

Yeah.

[Tarek Mansour]

And I. And if you really understand why where the success or lack of success comes from. Then you're like, it doesn't get to.

[Ed Elson]

Your head like 100%. Yeah, I'd love to know as you are, you're becoming more and more famous. The company especially, I mean this company is everywhere. And when this episode airs, it'll be a few days before the election. I will bet that you or Kalshi are going to be just somehow in the crosshairs of all of the political craziness that is going to happen. And maybe it's already happening to you. Do you read the comments? Do you read what people say about you? I mean I know there have been these articles that have been saying Kelsey's a problem. Do you read those? Like, what do you think about when the public starts talking about you?

[Tarek Mansour]

I don't really read anymore.

[Ed Elson]

You don't read?

[Tarek Mansour]

I don't really read the press. I read. I barely like people call me like, oh, sometimes they call me about my own quotes and I'm like, I don't even remember saying that. Like I really like so to have. But look, I think the way I view it and Luana co founder is very good at this. If you're long term oriented, there's going to be ups and downs. In the short term, it's a bit like a stock, but it all stabilizes over time. And so be long term oriented. So don't worry too much about the short term, whether good or bad. Like don't be too happy about the good and be too worried about the bad. But then the second thing is actually do good. Yeah, I really believe in that. Look, honestly, I was working at Citadel, I think I might have been actually richer if I stayed at Citadel. I mean maybe now it's compared well, like, you know my point, like it's cash, you get paid a lot. Like frankly it's insane now. Like where the things I'm hearing are truly insane. So like, yeah, I'm not doing this out of pro bono. Like I want to make money and so on, but I really genuinely want these markets to exist and I want to do good. And so as long as we're doing the right things day in, day out, I believe that there's going to be mean reversion. Like when people overestimate us, it's going to come down and be what it actually is. And when people think it's worse than what they should be, think I think it's gonna remain revert. So I believe that.

[Ed Elson]

My favorite saying from Scott, he has a quote that he always says Which I love. Which is nothing is ever as good or as bad as it seems.

[Tarek Mansour]

It's so true. And I actually repeated this. There's this, you know, this Chinese proverb or story about the Chinese farmer.

[Ed Elson]

Oh, I know, but tell it.

[Tarek Mansour]

Cause it's good. I say a lot to the company, multiple times, which is like, you know, so there's a Chinese farmer in a village, he's a farmer in China. And like, so, you know, he had this horse that he really loved. And the horse basically disappears. It just like flees. So the village comes down and is like, hey, like, you know, oh, my God, it's so unfortunate. So sorry to hear the news. And he's like, you know, his answer's like, I don't know. We'll see. And the next day, the horse comes back with a flock of horses. And it's like, wow. Now this dude is like, you know, rich and he has a flock of horses. And again they come back, the farmers come in. He's like, how fortunate. You're so lucky. Like, it's crazy. Life loves you and you know, God loves you. I don't know. We'll see. His son next day is riding one of the horses, falls, gets, you know, injured. Same thing. I don't know. We'll see. They come in unfortunate and so on. Next day, China goes to war. All the young people are get, you know, drafted into war. His son is injured, so he doesn't get drafted into war. You're the luckiest man alive. You're so fortunate. And it ends with this kind of like, you know, he smirks and he's like, I don't know. We'll see. And I always say, like, I don't know. We'll see. Like, you know, like, just chop wood, carry water, do the work day in, day out, and we'll see what happens.

[Ed Elson]

That is a great place to end. Do you have a prediction for the election? That's what people really want to know. I'd love to get it from you just before we wrap up. You don't have to say who's going to win unless you're down. But I'd love to hear, if you are the expert on prediction markets, what's your prediction for this election?

[Tarek Mansour]

It's funny because a lot of people are asking me this question now, but the guy.

[Ed Elson]

You're the guy.

[Tarek Mansour]

I don't have any different. I just want to say I'm still a regular dude when it comes to this. If I trade on cashier, I may lose money. I can't trade because I run the exchange, I'm legally not allowed to trade, but I don't know if I'd be that good at doing this. So I think trust the markets, that's the whole point. Right. And get informed. Like I think look at the markets, look at the polls. I think the markets are an accurate gauge. 60% doesn't mean 100% but I think right now 60% seems to be what fair value is. And that doesn't mean you've got your money on Trump. I don't have. Not your personal but I really think trust the market. But no, But I think 10 days is long. It's going to move a lot, whether up or down. But it does move. We've seen this. People are so short term driven right now it's like oh my God. But like you see tomorrow, it moves and moves and moves. So it's a very long day. Ten days is a very long time. And two, I really think 60, 40 is close to a coin flip. It really is. So what you should take from these markets, it's a very tight race.

[Ed Elson]

Tarek Mansur is the CEO and co founder of Kalshi, a regulated exchange and prediction market. This was awesome. I'm really happy you came in and thank you for doing this with me.

[Tarek Mansour]

Yeah, well this was really fun. Thanks for having me.

[Ed Elson]

Our producer is Claire Miller, our associate producer is Allison Weiss and our engineer is Benjamin Spencer. Thank you for listening to first time founders from the Vox Media podcast network. Tune in tomorrow for profit markets.

[Claire Miller]

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