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

23:09And 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. We'll be right back.

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25:17we're back with first-time founders i want to move on to another topic so this has become super super politicized because yeah yeah the odds are up yes um and a lot of people are looking at the odds on Calci right now, which as of today, I think they're around 60%. 60? Is it 60 right now? Let me try. It was, I think, 60 a day or two ago. I thought it might have dropped to 58, I think. 59%. 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. Sure, sure. Because it's more accurate than the polls because people are actually putting their money forward.

26:04You're drawing from the wisdom of crowds. My belief is that this is not necessarily the base truth. 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. 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.

26:44Like market odds are pricing the probability of a candidate winning. That's not what polls do. Not what polls are, yeah. Like, if you're up two points on the polls, you're up more like 5 % to 10 % in prediction markets and odds. It'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 campaign. They're going crazy. This has been crazy online. 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 defeat.

27:24It's rigged. But I'm telling everyone, calm down. First of all, this is still a coin flip. It's slightly biased. And if it was in the sports context, if Barcelona is slightly disfavored versus Real Madrid, Barcelona wins very often. So that's one. Two, 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. The whole point is it moves and it's pricing in real time. So that's kind of putting that out there. 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.

27:59The 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. 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 and Kamala.

28:33Not at all. That's not what this is saying. All that this is saying is I don't think this bias is really there. 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. Sure, sure. And Republicans, historically speaking, when they hear someone, hey, I'd like to ask you a few questions about the election, 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.

29:14What I would say about Kalshi is that you mentioned that the women on Kalshi are actually more pro-Trump. I would bet that Kalshi 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. But it's biased, 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. That is a fair point. And I think that there is a difference, though.

29:52And that's why that was my second point, actually. So first, I mean, that's kind of the face value. Maybe these women are actually more pro-Trump than they are pro-Kamela 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 polled 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's 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.

30:25Like I hope, you know, I hope that like there's no disagreement about - No, I don't care about money. People are greedy. As long as you trust that people are greedy. I love it. 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 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 equity on the platform, like really smart money.

31:00It is there. It could be individuals that respond. I mean, we have Susquehanna on the platform, SIG, one of our main partners that, you know, 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. But smart money brings back the prices to where it should be because there is incentive to do so. Like, 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 the Susquehannas of the world because they come and trade against it and bring the prices down.

31:35And these people are actually trading at a loss, at a negative expected value, and the market makers are trading at a positive expected value. That makes a lot of sense. What I would say is that, you know, 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.

32:11And I guess the question that I would sort of wrap up this specific point to you with is, do you think that Calci should be replacing polling in some way? 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, could you just give us the statistics on how much money has been waged? And it's different, by the way. So it's liquidity, and people confuse this a bit with volume. 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.

32:41On cash, you can take multi-million dollars without moving the price at all. It doesn't move it. The price won't move. So if you take multi-million dollar position, the price won't move. You can take up to$100 million. Which is reflective, by the way, of how much money is in. Yeah, yeah, yeah. But also how much the liquidity providers, this institutional market makers, that makes a difference between like a 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 one to two cents. 100 million. So it's very hard to move the prices.

33:08You need like tens of millions and the impact will be very marginal. So that's one. Two, 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. 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. Yeah. Fed interest rate decisions, climate and weather, even earthquakes.

33:40That 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. Yes. I don't say exclusive truth or like we're the only truth.

34:07No, we're not. Like more truth. Just get informed. Look at the markets. Look at polls. Maybe don't look at all the crazy videos on TikTok because there's misinformation left and 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. Yeah, that's how they're informing their bets, right? Yeah, like how are traders, like traders, a lot of, I don't know about any traders that doesn't have polling in their methodology. Let's talk about the business itself. How does Calci make money? How has this worked out for you as an actual business?

34:36Yeah, so it's, again, it's kind of one of the distinctions 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 a few thousand dollars. 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 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.

35:01We just want to have, like we want to promote. Just get everyone in there. 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 interest. So if you deposit money on Calci, both your cash, but also your open bets. So if you buy, like if you put a position on Kamala or Trump right now, that bet will pay you 4.1 % annualized variable interest. Oh, wow. Okay. 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.

35:35Wow. Okay. So you have no opportunity cost. We're paying your interest based on your kind of outstanding bets and positions on Calci. And the expenses, is it an expensive thing to run? Yeah. regulatory. I mean, we have the thing 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.

36:07So it's a 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. It's AWS. And you have some significant competitors, but from my understanding, no competitors that have been approved in the US. What is the competition? So I mean, look, there's always been, so there's like offshore, like polymarketers offshore, unregulated crypto-based prediction market. How is crypto-based? I didn't know that. Yeah, yeah. They actually did get an enforcement action from the CFC two years ago.

36:39So they're not allowed to cater to US. And there are a lot of others similar to Polymarket. 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 100, you give me back 100. And is that because they haven't verified their customers whereas you have? Yeah, 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.

37:04That'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, 100 ,000 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 and 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.

37:34That'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. Yes. So that people can trust this asset class because things can go wrong in unregulated venues. And when they do, people don't blame the unregulated venues. Regulators blame the asset class.

38:02We'll be right back.

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39:38we're back with first-time founders i want to shift gears to your personal journey as an entrepreneur tell us about 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 calci in your life it's interesting because both my co-founder and i had like very similar backgrounds so i i was born in LA. I grew up in Lebanon. Luana grew up in Brazil. We were both math geeks in school. Go to MIT. So this is your co-founder, Luana Lopez. Lara, yes. And you met at MIT? Yeah. So we met at MIT. It was kind of like, we were both math geeks.

40:13We love getting into MIT. That was the place for math geeks. And then we both kind of love finance. But we weren't like the type that was, you know how there's a persona, 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. We weren't reading books or listening to podcasts. I think I was firmly convinced that I was going to be a trader. I love working at Citadel. Citadel was amazing. It was incredible. It was one of those things that the idea wouldn't let go, basically. The idea was so constantly in the back of our minds and it was pulling us to it slowly.

40:50It kept on popping up. In some ways, the idea pulled us into building the company rather than vice versa. We weren't looking for an idea. It's like the idea just kind of pushed us. And we kind of loved it. It's like this beautiful notion of, what if you can apply markets to price the future? Yeah. Right? 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. Let the market tell you. Market truth, right? And that was the elegance of it.

41:22And 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. It's almost like there are some ideas that are so obvious that they have to get done. Like, 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. Not anymore. We do some. uh uh i mean we've hired people that are a lot smarter than us which is which is uh helpful which is helpful yeah we do less we do less for sure uh i we were making jokes this week actually like uh i've slowed down i was i was better at math before you know out of practice i'm sure you're good at lobbying now yeah yeah better yeah yeah i mean not you know but like engaging regulators and yeah politics definitely better but i would like to hear a little bit about that But I mean, first, let's talk about maybe fundraising.

42:22I mean, 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? I think I'm a good fundraiser in some ways, but there are better fundraisers for sure. But I think I build relationships with people. I don't play a lot of games. I'm very honest and transparent upfront. Yeah. 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.

42:55And 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, I 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 cash sheet is going to be, I hate these claims. Like, and all founders do that. Like we are going to be - We're the next Apple.

43:22Yeah, we're next. We're going to be a hundred billion dollar 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 hundred billion dollar company. And if things go our way, that's the size of the time. 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.

43:48And I think a lot of people appreciate that. 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 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.

44:28And it sounds like you're 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. I'm always like interested. People like, 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. Like, you know what I mean? Like, it's like, I have a lot of insecurities in a variety of different ways.

45:03And maybe I've gotten tougher over time. Like people don't see it as much. but people like over assume how confident founders are and how it feels on the inside. Like, I think I've really taught myself a few things. We've gotten punched down and beat down so many times. Like press loves us at some point and the press hates us at other points. 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.

45:36Like all the work was actually day in, day out of like chop wood, carry water, chop wood, carry water. So I realized like actually like less things are 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 like my job and like my work. and I would say the last one is it's a bit of absurdity of life like don't take yourself too seriously yes 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 like 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 neither are genius no but I you know and that's because I've partly because of one and I've worked on my EQ over time like I and I like engaging with people and meeting people and so on.

46:32But number one is by far and large the most important. That's it. I just work really hard. And if you really understand where the success or lack of success comes from, then you're like, it doesn't get to your head. A hundred percent. Yeah. I'd love to know as you are, you're becoming more and more famous. Yeah. The company is special. I mean, this company is everywhere. And, you know, 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.

47:13Do 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 Kalshi's a problem. Do you read those? What do you think about when the public starts talking about you? I don't really read anymore. You don't read? I don't really read the press. I read, I barely, like people call me, it's 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 it happens. 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.

47:48It's a bit like a stock, but it all stabilizes over time. And so be long-term oriented. So you 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. Because like, look, honestly, I was working at Citadel. I think I might've been actually richer if I stayed at Citadel. I mean, maybe now it's compatible. Like, you know my point. Like, it's cash. You get paid a lot at Citadel. Like, frankly, it's insane now. Like, the things I'm hearing are truly insane.

48:17So 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 i believe that there's gonna be mean reversion like when people overestimate us it's gonna come down and be what it actually is and when people think it's worse than what what they should be thinking i think it's gonna remain revered so i i believe that 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 it's so true and i actually repeated this there's this you know this chinese uh proverb or story about the the chinese farmer oh i know the bits tell it because i i say 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 and in china and like so you know uh he had this horse that he really loved and the horse basically disappears it's just like fleas so the village comes down and is like hey like uh you know oh my god it's so unfortunate so sorry to hear the news he's like you know his answer is like i don't know we'll see and the next day the the horse comes back with a flock of horses and it's like, wow, this dude is like, you know, rich and he has a flock of horses.

49:23And again, they come back, the farmers come in. It'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.

49:52And 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. 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. I'd love to hear if you are the expert on prediction markets. What's your prediction for this election? It's funny because a lot of people are asking me this question now. You're the guy. You're the guy now. I don't have any different, like, I just want to say, I'm still a regular dude when it comes to this.

50:29Like, you know, if I trade on cashier, I may lose money. You know, 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 - 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.

51:00It's going to move a lot. Yes. 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. 10 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. Tarek Mansar is the CEO and co-founder of Calci, a regulated exchange and prediction market. This was awesome. I'm really happy you came in and thank you for doing this for me. Yeah, well, this was really fun.

51:31Thanks for having me.

51:36Our producer is Claire Miller. Our associate producer is Alison 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 Prof G Markets.