The FBI just raided the home of Polymarket’s founder. What does the future of electoral betting markets hold? 

Perhaps the best-known one, Polymarket, burst back into the spotlight on Wednesday after the FBI raided the home of its 26-year-old founder, Shayne Coplan. Reports of a Justice Department investigation leaked shortly thereafter. 

The future of the popular platform now looks hazy. To briefly recap, Polymarket was kicked out of the U.S. in 2022 for letting U.S. users bet on political prediction markets, which, at the time, was against the law. Since then, the 2024 election catapulted Polymarket into prominence when its users correctly predicted Donald Trump’s victory, and a gutsy legal gambit from its competitor, Kalshi, paved the way for electoral betting to be legalized in the U.S. 

It’s always difficult for a company that broke U.S. law and then left to return, but Polymarket had a potential path back home, thanks to Trump’s victory and an ostensibly more lax regulatory environment (Polymarket call for Trump’s win may help its chances with the famously narcissistic president-elect.) An apparent DOJ investigation, however, makes matters more difficult. 

Prosecutors could be looking into a variety of issues. At the light end, Polymarket’s former regulator—the Commodity Futures Trading Commission—may have complained to the Justice Department about U.S. residents still betting through the site, in violation of the company’s previous consent order. But that likely wouldn’t have warranted an FBI raid. 

On the more serious end, Polymarket could be looking at money laundering violations under the Bank Secrecy Act related to compliance failures around “know-your-customer” policies, which verify users’ identities to prevent illicit behavior. The Justice Department has used similar infractions to prosecute other crypto companies like Binance. 

“If it is a money laundering investigation, it is not uncommon for the DOJ to be brought in and for the investigation to be conducted collaboratively,” said Hadas Jacobi, a former attorney with the New York Department of Financial Services and counsel at Reed Smith’s crypto group. She cautioned that without more information, it would be impossible to know the motivations for the probe, but described the raid as a “dramatic” move. 

Polymarket has characterized the raid as politically motivated. A spokesperson declined to comment further.

Even before the raid, I was curious about the future of prediction markets, especially from a venture perspective. Platforms like Polymarket and Kalshi have been showered with venture capital from top firms, after all. Still, they pop up every four years—never with this much popularity, but always as another source of information alongside polling numbers. Even if the 2024 cycle represented the breakthrough moment, can the momentum sustain the lean times? 

Alfred Lin, the Sequoia partner who led his firm’s investment into Kalshi, told me that he has been fascinated by prediction markets since studying them as a Stanford PhD student, before dropping out to pursue a career in tech. “It harnesses the wisdom of the crowd, and it uses market mechanisms to basically efficiently aggregate information and also try to reduce biases,” he told me. 

While he acknowledged that election day would probably be the peak for Kalshi, he said it served as a massive marketing event for the platform that saw it onboard a million users between Oct. 4, when election markets became legal in the U.S., and Nov. 6, when the election was called. Now, he expects the stickiness of the platform will keep users wagering on other events, such as Trump’s political appointments. “The longtail of events in aggregate can be bigger than just one event,” he said. Kalshi CEO Tarek Mansour confirmed to me that the current volume on the platform is higher than a week before the election. 

Rob Hadick, a general partner at Polymarket-backer Dragonfly, echoed Lin’s sentiments, arguing that people will now look to prediction markets as a better conveyer of information than traditional media (no offense taken). He said that when Dragonfly underwrote its Polymarket investment last year, it was already seeing similar “splashes” of volume for events other than the election, like betting on Sam Altman’s return to OpenAI after his brief firing. “These business-type markets have continued to do quite well over the last year, even outside of the election,” he told me. 

Hadick added the social component he’s witnessed around Polymarket, where different betting lines have become a focal point for people to gather around on platforms like Telegram and Discord. “It creates this social experience,” he said. 

While Kalshi has a clear—and regulated—path forward, Polymarket’s is certainly murkier. Hadick was nonplussed, citing Polymarket’s massive lead over Kalshi and the popularity of its markets outside the U.S., though we did speak before the raid. 

“What’s clear in my mind is that we’ve crossed the Rubicon,” he told me. “There’s no going back in terms of taking prediction markets out of this news flow.” 

Leo Schwartz
Twitter: @leomschwartz
Email: leo.schwartz@fortune.com
Submit a deal for the Term Sheet newsletter here.

Nina Ajemian curated the deals section of today’s newsletter. Subscribe here.

VENTURE DEALS

– Tessl, a London-based open software development platform, raised $125 million in funding. Index Ventures led the $100 million Series A funding round and was joined by Accel, GV, and boldstart ventures. boldstart ventures and GV led the $25 million seed round.

– OpenAirlines, a Toulouse, France-based eco-flying software solutions provider, raised €45 million ($47.5 million) in funding. Eiffel Investment Group led the round and was joined by Mirova.

– SwiftConnect, a Stamford, Conn.-based access network and digital pass provider, raised $37 million in Series B funding. Quadri Ventures led the round and was joined by HID, Egis Capital Partners, Klingenstein Fields Advisors, existing investors Crow Holdings, JLL Spark, Navitas Capital, and others.

– Plantible Foods, a San Diego-based food technology company, raised $30 million in Series B funding. Piva Capital and Siddhi Capital led the round and were joined by Betagro Ventures, Cultivate Next, Nourish Ventures, and existing investor Astanor Ventures.

– Impilo, a Philadelphia-based digital healthcare platform, raised $11.5 million in Series A funding. Construct Capital led the round and was joined by GC 1 Capital, One Way Ventures, 2048 Ventures, and angel investors.

– Influur, a Miami-based professional platform for influencers, raised $10 million in Series A funding. Point 72 Ventures and H20 Capital led the round and were joined by Sofia Vergara, Thalía, Luis Balaguer, and others.

– Gendo, a London-based AI architecture platform, raised £4.3 million ($5.5 million) in seed funding. PT1 and LEA Partners led the round and were joined by Koro Capital and existing investor Concept Ventures.

– Serenity, a San Diego-based AI environmental, health, and safety software provider, raised $5.5 million in Series A funding. Allegion Ventures led the round and was joined by existing investor Base10 Partners.

– Team-GPT, a Sofia, Bulgaria-based collaborative AI workspace for enterprises, raised $4.5 million in seed funding. True Ventures led the round and was joined by Pact and angel investors.

– Mithrl, a San Francisco-based AI-powered scientific research platform, raised $4 million in seed funding. Bonfire Ventures led the round and was joined by existing investors.

– Arphie, a San Francisco-based AI agents for RFPs and complex questionnaires developer, raised $2.9 million in seed funding. General Catalyst led the round and was joined by Definition and Recall Capital.

– Cyber Upgrade, a Vilnius, Lithuania-based AI-powered cybersecurity solutions provider, raised €2.5 million ($2.6 million) in seed funding from Superhero Capital, Specialist VC, FIRSTPICK, NGL Ventures, and angel investors.

– TestSprite, a Seattle-based AI-powered software testing platform, raised $1.5 million in pre-seed funding from Techstars, Jinqiu Capital, MiraclePlus, and others.

PRIVATE EQUITY

– SAI MedPartners, backed by Northlane Capital Partners, acquired IDEA Pharma, a London-based pharmaceutical path-to-market strategic services provider. Financial terms were not disclosed.

EXITS

– Transition Capital Partners acquired PAT Tank, a Port Arthur, Texas-based tank solutions provider for the petroleum, agriculture, power generation, and chemical industries, from 3 Rivers Capital. Financial terms were not disclosed.

OTHER

– Bitsight agreed to acquire Cybersixgill, a Boston-based cyber threat intelligence data provider, for $115 million.

– Aprioa acquired Kirsch Kohn Bridge, a Woodland Hills, Calif.-based CPA and advisory firm. Financial terms were not disclosed.

PEOPLE

– Oryx Global Partners, an Abu Dhabi, UAE-based energy transition and supply chains investment firm, added Richard Davis as an operations partner. Previously, he was at Qatar Investment Authority.