Waterhouse VC is a fund that specialises in global publicly listed and private businesses related to wagering and gaming sectors. The fund is only available to wholesale investors.

Since inception in August 2019, Waterhouse VC has achieved a gross total return of +3,501% (annualised at 93%), as at 31 January 2024, assuming the reinvestment of all distributions.

Here to Stay

Three months ago, we explored the meteoric rise of prediction markets during the U.S. elections. We focused on Polymarket who led the charge with a staggering $3.6 billion in traded volume - far outpacing traditional betting platforms and proving that market-driven speculation can outperform conventional forecasting from polls and media outlets.

At the time, one key question loomed: without a major political event like a U.S. election, would the momentum endure? Three months may not be long enough to draw definitive conclusions, but early indicators suggest these platforms are here to stay. Even with its ongoing exclusion of U.S. users, Polymarket continues to attract deep liquidity across financial, crypto, geopolitical, and sports markets.

However, it is Kalshi that has truly captured attention with its groundbreaking regulatory triumph. Having secured approval from the Commodity Futures Trading Commission (CFTC), Kalshi is poised to reshape the U.S. wagering landscape. Where other platforms shied away from the prolonged regulatory fight, Kalshi took it on - and won.

In this edition, we explore how Kalshi’s regulatory success has positioned it as the first fully legal event contract exchange in the United States, and what that means for the future of betting on everything from elections to sports.

The Genesis of Kalshi

Kalshi was founded in 2019 by Tarek Mansour and Luana Lopes Lara, two MIT classmates, who share a similar intellectual rigour and unrelenting drive. The idea took shape in 2016, when Mansour interned at Goldman Sachs, a year defined by the Brexit vote and the Trump vs Clinton election.

*Kalshi co-founders Luana Lopes Lara and Tarek Mansour. Source: LinkedIn*

Working in equity derivatives, he saw how institutions built complex financial products around these seismic global events. Clients wanted exposure to the outcomes, and banks profited from selling structured products linked to them.

Three takeaways emerged:

The products traded were just proxies - the actual outcome of events were what people truly cared about.
Excessive fees and complex structures limited access to institutional players.
Retail was effectively shut out from directly trading on these events.

Luana Lopes Lara crossed paths again with Mansour while trading at Citadel in 2018. There, they both observed the same pattern of trading around macro events such as inflation reports, Federal Reserve decisions, and geopolitical shocks - while institutions had sophisticated tools to hedge and profit from these risks, retail traders did not.

The scale of institutional trading highlighted the key point: for event contracts to scale, they needed to be fully regulated, fully legal, and recognised as financial instruments - on par with established derivatives like futures and options. It had to become a mainstream asset class.

The Fight for Legitimacy

Event contracts fall under the oversight of The Commodity Futures Trading Commission (CFTC), but as this had not been done before, there was no clear regulatory framework or blueprint for approval.

For nearly three years, Kalshi’s founders navigated the complex regulatory process, seeking to bring event contracts under federal oversight as a financial instrument rather than a gambling product.

With strong foundations in mathematics and computer science, Mansour and Lopes Lara brought unique perspectives to the challenge. Prior to this, Mansour was a competitive skier in Lebanon, while Lopes Lara was a professional ballet dancer in Brazil - their disciplines required years of training with no guaranteed success, a mindset that likely proved critical in dealing with countless legal setbacks. Kalshi was also a 2019 graduate of Y Combinator - where both learned the skills required to launch a business.

They reportedly called over 60 lawyers a day, searching for one who believed the CFTC would approve an event contract exchange. Every firm turned them down, until they found Jeff Bandman, a former CFTC official who was up for the challenge.

Kalshi had to construct its regulatory framework from scratch, addressing:

Consumer protection - ensuring participants fully understood the risks.
Market integrity - preventing manipulation and insider trading.
Contract structure - defining which types of events could legally be traded.

The process, initially expected to take six months, ended up lasting nearly three years.

After earning the green light in 2022, Kalshi faced further hurdles. The CFTC initially permitted a broad range of event contracts but later blocked election betting, citing concerns over political manipulation.

Kalshi challenged the decision in court, arguing its federal approval should extend to elections. On September 12, 2024, a federal judge ruled in Kalshi’s favor, a decision upheld by a U.S. federal appeals court on October 2, 2024 - marking a historic first: betting on U.S. elections became fully legal under federal law. The event saw over $419 million traded, a fraction of Polymarket’s $3.6 billion, though the latter had a significant head start due to its offshore status.

*2024 trading volumes on the U.S. election market, by platform. Source: X.com*

*Kalshi co-founder Tarek Mansour with ‘Oscar for Best Picture’ market. Source: The Ankler*

Breaking into Sports Betting

Kalshi’s regulatory expansion didn’t stop with elections. In January 2025, it moved into sports event contracts, positioning itself as the first federally regulated exchange to offer sports trading in the U.S. Its inaugural offering was the Super Bowl, which reportedly attracted $27 million in wagers.

While that figure is modest compared to traditional sportsbooks, the real significance lies in Kalshi’s regulatory advantage: it is a CFTC-regulated exchange operating in a space where state-licensed sportsbooks either face heavy restrictions or cannot operate at all.

*Tarek Mansour advertising sports betting for the entire U.S. market. Source: X.com*

Historically, the Wire Act has restricted exchange-based sports betting in the U.S. However, Kalshi’s federal-level approval allows it to bypass state-by-state licensing requirements. Unlike DraftKings or FanDuel, which must secure costly licenses in each state, Kalshi can offer sports contracts nationwide - including states like California and Texas, where traditional sports betting remains off-limits. This advantage effectively grants Kalshi near-monopoly status in markets that sportsbooks are barred from entering.

Advantage Kalshi

Kalshi also benefits massively from avoiding the Gross Gaming Revenue (GGR) tax, which is as high as 51% in New York. Traditional operators not only face GGR taxes but also state-specific licensing fees and compliance costs that damage profitability. This has made the U.S. a graveyard for sportsbooks who do not have the scale and operational leverage to survive, with only a handful of companies able to absorb costs and remain competitive.

The Challenge of Conversion

Still, recruiting traditional sports bettors won’t be easy. To ease adoption, Kalshi introduced an “American Odds” feature for the Super Bowl, matching the moneyline style many bettors already know. However, familiarity alone isn’t enough. Liquidity remains the true differentiator - it dictates market efficiency, pricing accuracy, and overall user experience.

For Kalshi to compete with the fluidity of traditional sportsbooks, it must ensure deep, reliable liquidity across a diverse range of markets. Without it, markets become inefficient, spreads widen, and execution delays frustrate users, rendering the exchange model unviable. This is where institutional backing and the groundwork done to adhere to regulation becomes critical.

The Liquidity Factor

Securing federal regulatory status was more than just a legal victory for Kalshi - it may well be its enduring competitive edge. By positioning itself as a platform for event-driven speculation on everything from weather and interest rates to the Oscars and Bitcoin, Kalshi has attracted institutional market-makers, high-profile investors, and brokerage integrations, leading to deeper liquidity and more efficient price discovery across its markets. It is this liquidity setup that can make prediction markets so accurate and valuable. We delved into this in our November newsletter.

*Impressive liquidity volumes for a broad range of markets on Kalshi. Source: Kalshi*

High-Profile Backers

One clear sign of institutional confidence is the participation of Charles Schwab in Kalshi’s $30 million Series A round, led by Sequoia. Susquehanna (SIG), which trades $2 trillion in ETF volume annually, has established a dedicated trading desk for event contracts, reinforcing Kalshi’s status as a legitimate financial exchange rather than just a sportsbook alternative or traditional betting exchange.

*Susquehanna announcement of trading desk for event contracts. Source: Bloomberg*

Kalshi has recently onboarded brokerage platform WeBull, which has 20 million users, expanding its reach further. The most significant potential integration would be with Robinhood, which initially allowed users to wager on Kalshi’s Super Bowl market before regulatory complications paused the partnership. If resumed, this could be transformative. The brokerage angle from Kalshi has enormous upside. There are 160 million Americans who own stocks, so any integration taps into an engaged audience.

One of Kalshi’s biggest attractions is its ability to create markets at speed. Users can request markets, and as long as they do not encourage manipulation and meet regulatory safety standards, they can be approved and launched within 24 hours. This agility contrasts with traditional financial markets, where approvals - such as those for Bitcoin and Ethereum ETFs can take years.

Right Hands

Securing a major strategic advantage is one thing - keeping it is another. Kalshi has aligned itself with key political and regulatory figures, a move that likely keeps decision-makers on the same hymn-sheet as it expands. The appointment of Donald Trump Jr. as a strategic advisor strengthens Kalshi's political connections. President Trump's nomination of Kalshi board member Brian Quintenz to lead the CFTC - the very agency that regulates Kalshi - can only be seen as a positive for the business.

In summary, Kalshi’s blend of startup agility and regulatory legitimacy puts it in an exceptionally strong position. With a first-mover advantage in states where sports betting remains prohibited, deep institutional backing which brings liquidity, and an ability to avoid the punishing GGR tax burden provides Kalshi with the perfect recipe for success.

To Fear or to Welcome?

Despite their advantages, strict adherence to CFTC guidelines limits the types of markets it can offer. While it has recently submitted a push for single-game contracts and prop markets, signaling an effort to expand into more traditional sports betting territory - it would be surprising if contracts became more exotic than that.

In the long run, this may actually benefit traditional U.S. sportsbooks. If Kalshi brings new bettors into event-driven speculation, many will likely seek out more entertainment-driven products like accumulators, bet-builders, and casino games- products that Kalshi cannot offer under its current regulatory framework.

Kalshi's success illustrates a fundamental truth we've long observed in the gambling industry: while customer-facing businesses face constant disruption from regulatory changes and new technologies, the underlying demand for betting remains remarkably consistent - people will always seek ways to speculate on outcomes they care about. This reinforces our fund's focus on B2B technology providers who power these evolving platforms, as they benefit regardless of which consumer-facing operator ultimately wins market share, making them particularly attractive investments in this landscape.

Pitch Us

If you know any gambling tech companies seeking capital or distribution support, our new 'Pitch Us' page makes it simple to connect with our investment team.

Media

In a recent interview, Tom discusses what the investment team learned at the recent ICE Barcelona 2025 Conference.

For wholesale investors interested in following wagering and gaming industry news and trends, please follow our updates on Twitter (@waterhousevc) or through our website at WaterhouseVC.com.

All the best,

Tom

DISCLAIMER AND IMPORTANT NOTES

Please note the above information in relation to Polymarket, The Commodities Futures Trading Commission, Associated Press, Robinhood, Kalshi, Betfair, Shayne Coplan, Tarek Mansour, Luana Lopes Lara, Goldman Sachs, Citadel, YCombinator, MIT, DraftKings, Stake, Flutter Entertainment, FanDuel, BetMGM, WeBull, Jeff Bandman, Sportico, Donald Trump Jr, Brian Quintenz, Susquehanna International Group is based on publicly available information and should not be considered nor construed as financial product advice. The Fund currently has a position in Flutter Entertainment. The information provided in this document is general information only and does not constitute investment or other advice. Readers should consult and rely on professional investment advice specific to their individual circumstances.

Not for Release or Distribution in the United States of America

This material may not be released or distributed in the United States. This material does not constitute an offer to sell, or a solicitation of an offer to buy, any securities in the United States or any other jurisdiction in which such an offer would be illegal. The units in the Fund have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the U.S. Securities Act) or the securities laws of any state or other jurisdiction of the United States. Accordingly, the units in the Fund may not be offered or sold in the United States unless they are offered and sold, directly or indirectly, in transactions exempt from, or not subject to, the registration requirements of the U.S. Securities Act and any other applicable United States state securities laws.

General Information Only

This material is for general information only and is not an offer for the purchase or sale of any financial product or service. The material has been prepared for investors who qualify as wholesale clients under sections 761G of the Corporations Act or to any other person who is not required to be given a regulated disclosure document under the Corporations Act. The material is not intended to provide you with financial or tax advice and does not take into account your objectives, financial situation or needs. Although we believe that the material is correct, no warranty of accuracy, reliability or completeness is given, except for liability under statute which cannot be excluded. Please note that past performance may not be indicative of future performance and that no guarantee of performance, the return of capital or a particular rate of return is given by Sandford Capital, Waterhouse VC or any other person. To the maximum extent possible, Sandford Capital, Waterhouse VC or any other person do not accept any liability for any statement in this material.

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Waterhouse VC is an Australian Unit Trust denominated in AUD and available to wholesale institutional investors worldwide with a minimum of AUD 500,000 or USD / EUR / GBP / JPY / CHF equivalent. This material has been prepared by Waterhouse VC Pty Ltd (ABN 48 635 494 861) (‘Waterhouse VC’, ‘Trustee’, ‘us’ or ‘we’) as the Trustee of the Waterhouse VC Fund (the ‘Fund’). The Trustee is a corporate authorised representative (CAR 1278656) of Sandford Capital Pty Limited (ABN 82 600 590 887) (AFSL 461981) (Sandford Capital) and appoints Sandford Capital as its AFS licensed intermediary under s911A(2)(b) of the Corporations Act 2001 (Cth) to arrange for the offer to issue, vary or dispose of units in the Fund.

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Past performance of Waterhouse VC is not a reliable indicator of future performance. We make every endeavour to ensure results are accurate. Waterhouse VC Pty Ltd does not guarantee the performance of any strategy or the return of an investor’s capital or any specific rate of return. No allowance has been made for taxation, where applicable. We encourage you to think of investing as a long-term pursuit. Waterhouse VC’s results are indicative only and subject to subsequent year end external financial review.

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