Pre-IPO Betting Boom Hits Prediction Markets

Most everyday investors can’t buy shares of hot private companies like SpaceX and OpenAI before they go public. With potential mega-IPOs looming this year, prediction markets like Polymarket and Kalshi are turning that hype into tradable bets. 

Users are flocking to yes-or-no bets on milestones like valuations and IPO timelines, betting with contracts that trade in cents and pay out $1 if the buyer is right. That’s helping prediction markets tap into excitement around the IPOs and reduce their reliance on sports betting, which represents much of their business. 

But pushing deeper into financial bets could also test the limits of U.S. securities laws keeping many small investors out of private markets in the first place. Private companies make fewer disclosures than public ones, which is why most retail investors are limited in buying their shares before an IPO. 

The closer prediction-market contracts get to stock-like bets, the higher the chance the SEC will want to regulate them. The legal line is clearest when a bet explicitly references a stock price or other security. 

"Event contracts offered in the U.S. that directly reference securities and related information would trigger the SEC's jurisdiction,” and can only be offered to retail investors on national securities exchanges such as the NYSE, said Gabe Rosenberg, a partner advising financial institutions at Davis Polk. 

There’s more of a gray area around bets tied to events that could affect a company’s financial performance—such as the release of a new AI model or the number of launches SpaceX completes in a certain period. If those contracts start to look too much like stock wagers, they could fall under the SEC’s authority. That would be a problem for Kalshi and Polymarket’s U.S.-focused business, which both operate under the CFTC’s oversight as opposed to the SEC.

“A lot depends on where that line is,” said Rosenberg, adding that the CFTC and the SEC will need to come to an agreement on what types of contracts fall under which regulator and provide specific guidance to prediction markets. 

That uncertainty is already showing up in the types of contracts prediction markets offer—and to whom. Polymarket offers a wide range of bets on private companies, but only to non-U.S. customers. Its popular pre-IPO bets include whether SpaceX’s market cap will top certain levels by the end of its first day of trading. That contract has drawn $3 million in trading volume, and currently indicates a 98% chance that SpaceX will close its first day of trading above a $1.2 trillion market cap. 

Polymarket is also offering offshore users bets on how private valuations will change for OpenAI and Anthropic, which are preparing for potential IPOs as soon as later this year. That includes wagers on what valuation each AI giant will reach by the end of June, and currently imply a 93% chance Anthropic hits or tops a $1 trillion valuation by then, compared with a 20% chance OpenAI reaches the same level.

To settle those bets while the companies are still private, Polymarket has teamed up with Nasdaq Private Market, whose data on private share trades will determine which contracts pay out, the companies announced earlier this month. Polymarket also offers offshore bets on public companies’ earnings and share prices, such as whether Tesla will beat estimates on quarterly earnings or where its stock will trade in a given period. 

Polymarket’s U.S.-focused arm, meanwhile, doesn’t offer financial bets yet and is focused mainly on sports, weather and elections 

Kalshi, which caters to U.S. users, offers a limited lineup of contracts tied to private-market companies, including some bets related to OpenAI and SpaceX such as which months they will announce an IPO, but no wagers specifically tied to valuations. Kalshi also offers bets on Tesla’s vehicle deliveries, a closely-watched metric for investors, but not on earnings or stock prices themselves. 

Company-related predictions have become popular in part because they offer a relatively straightforward way to bet on a private company’s fortunes. Users can buy a contract tied to a specific event and deadline, hold it until resolution or sell before then. Crypto exchanges have also launched tokens designed to provide exposure to private companies without users actually owning the shares, but those tokens are more complicated behind the scenes. For instance, Bitget last month launched preSPAX tokens, which the exchange said are structured as a debt instrument meant to mirror SpaceX’s economic performance once public. Users bought up the first batch of preSPAX tokens at $650 each, and the price has since climbed to $903.

For now, prediction markets are in favor under the Trump administration, suggesting they have leeway to test the regulatory boundaries of financial bets. CFTC Chair Michael Selig is racing to stop states from killing prediction markets. And the SEC doesn’t have much appetite for turf wars, agreeing earlier this year to collaborate with the CFTC. The president’s son, Donald Trump Jr., advises both Kalshi and Polymarket, and the venture firm in which he is a partner, 1789 Capital, has invested in Polymarket. 

Still, that hands-off approach to prediction markets may not last beyond this administration. “Where a future CFTC will go with these determinations, that’s very difficult to predict,” said Jon Ammons, a partner at Reed Smith who works on prediction markets issues. 

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